Contango Report: Metals Stare at Rising Prices

As the summer months continue, a number of commodities hit a turning point in their seasonality, triggering movements in their prices and expectations of future prices. As such, taking a look at commodities exhibiting contango is a healthy exercise to ensure that you have a firm grasp on the current state of the hard asset world. As a quick reminder, contango is the process whereby near month futures are cheaper than those expiring further into the future, creating an upward sloping curve for future prices over time [for more commodity news and analysis subscribe to our free newsletter].

Below, we outline a handful of commodities currently exhibiting this pattern:

  • Gold – Futures for everyone’s favorite precious metal are currently sitting in contango through the June 2020 contract, as far out as those futures are currently offered. Gold often sits in contango given the high storage costs associated with the hard asset.
  • SilverSilver – Like its precious metal sister, silver is also sitting in contango as far out as its contracts are offered, which currently extends to December of 2018. Storage costs for silver are also high, especially because the metal is often stored in greater quantities given its relatively cheap price.
  • Corn – Futures for this grain commodity are facing an upward slope through the July 2016 contract. Corn prices have been steadily falling since their 2012 spike, but it looks like they may be set to rise for the short-term future [see also 13 Ways Corn Is Used In Our Everyday Lives].
  • Copper – Dr. Copper is facing an upward curve through its March of 2015 contract, considerably less than the previous metals, but it’s in contango nonetheless. Copper has struggled to gain upward momentum since the 2008 financial crisis, but it would appear that it is poised to rise for the next few months.
  • Natural Gas – NG typically makes the contango list, but it is often in that pattern for longer than just a few months; currently, NG is staring at an upward sloping futures curve through January of 2015. The storage costs associated with this fossil fuel often force it to sit in contango for much longer.

The Bottom Line

One commodity that readers may have noticed was omitted was crude oil, one that used to be well known for sitting in contango for virtually as far out as futures contracts were offered. As natural gas begins to take market share from crude, and production around the world continues to ramp up, it looks like crude prices are expected to decrease in the coming years. That could be a great sign for consumers, but may hurt some major producers.

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Disclosure: No positions at time of writing.

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