As traders try to make their way through the volatile and often dangerous world of commodities, the futures curve is one of the most important aspects to focus on. Many traders look for contangoed curves to either make savvy trades or avoid potential blunders for their portfolio. Contango, the process by which near month futures are cheaper than those expiring further into the future, is often caused by storage costs of hard assets, but can also be a reflection of future price expectations. In this iteration of our contango report, we focus on three key metals for investors to keep an eye on [for more information on commodities in contango subscribe to our free newsletter].
There is almost never a time in which gold prices are not contangoed, as the market simply bets on this yellow metal to continually rise, as it has done for the last decade. For the time being, this precious metal is exhibiting contango through June of 2018, as far out as contracts are offered. Those who choose to utilize futures-based ETFs will need to keep a close eye on the curve, as the automated front-month roll can be a doozie during times of contango. For those looking to make a longer term play on this upward-sloping curve, the SPDR Gold Trust (GLD) offers and extremely active options market to execute long term positions.
Copper is arguably the most important industrial metal out there, or at least the benchmark commodity for that market segment. The reddish-brown metal is stuck in a contangoed rut through March of 2014, giving investors roughly 18 months of increasing contract prices. From that contract, copper falls into backwardation for as far out as futures are offered, though it should be noted that the price differences are very minor for this metal [see also Five Commodity ETFs Counting On Contango].
This precious metal has been gobbling up headlines around the world as the South African mining strikes had been disastrous for the supply of platinum. Often overlooked by gold, this commodity has far more industrial uses than its yellow counterpart and is favored by those who want to play a precious metal with more real-world applications other than a store of value. Platinum futures are currently sitting in contango for a year, as far out as the NYMEX offers contracts, meaning that the white metal could continue to sit in contango for the foreseeable future.
Disclosure: No positions at time of writing.