Backwardation

Backwardation, along with contango, is a term that’s used frequently in commodities markets. It refers to prices today being lower for a future delivery date than for an earlier delivery date.

For example, if the gold spot price (for T+2 delivery) is $1,500 per ounce and the price for delivery in 6 months is $1,490 per ounce, this market is “in backwardation” or “backwardated”.

Backwardation is often caused by significant shortages of physical commodities for near-term delivery dates.