Normal backwardation

Normal backwardation, sometimes referred to as Backwardization or Inverted Market, describes a situation regarding prices of commodity futures. In backwardation of the futures price is below the expected spot price at maturity / expiration of the deadline month (delivery date in the future), which is a reverse market. The futures curve is therefore typically tilted down because the futures contracts thus at lower prices - are traded - a result of increased demand.

Increased demand - the known demand in the physical market is greater than the demand in the future, or in other words, you need the raw material immediately, rather than in weeks or months. The term backwardation is originally from London precious metals markets. A backwardation starts when the difference from the forward price to spot price is less than the storage costs, or if the appropriate raw material is needed immediately, rather than in weeks or months.

More generally, the term backwardation be applied to prices that have nothing to do with futures, if an analog pattern is in the pricing. If it costs more, for example, to obtain a certain amount of silver for 30 days as special loans to obtain than the same amount for 60 days as special loans, then one can speak of backwardation of silver price.

In his book " Treatise on Money " from 1930 (Chapter 29 ) argues, the English mathematician and economist John Maynard Keynes, that backwardation is not an abnormal market situation, but as " normal backwardation " stems from the fact that commodity producers rather against her want to hedge price risk as potential customers. An academic dispute on this issue extends to the present day.

The opposite situation is called contango market.

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• Investopedia website Articles on Contango and backwardation and Stock Market.

• Gold backwardation - gains in commodities and falling markets by Eugen Weinberg

• Goldfixing.de shows on the side of the term structure of many commodities on the basis of forward curves

• Futures