Contango describes a market where the forward or futures price of an asset is higher than its current spot price, so the forward curve slopes upward over time. In precious metals it is the normal state of the market: the cost of carrying the metal forward — chiefly funding — exceeds the return from lending it, so the forward sits at a premium to spot.
What Causes Contango in Gold?
In the London gold market, the forward rate is essentially the dollar interest rate minus the gold lease rate. When the dollar funding rate is higher than the rate earned by lending gold, the forward price comes out above spot — contango.
For most of modern history, gold lease rates have sat below dollar interest rates, which is why gold forwards are typically in contango. It reflects the cost of financing a position, not a bullish or bearish view on the metal.
Why Does Contango Matter?
Contango tells you the shape of the cost of holding an asset over time. For a producer hedging future output or an investor rolling a position, an upward-sloping curve means the forward is priced at a premium to today’s spot.
For example, if spot gold is around $695.50 and three-month rates put the forward near $704.45, that roughly $9 premium is the contango — the carrying cost embedded in the forward price.
Contango vs. Backwardation
Contango is an upward-sloping curve, with forwards above spot. Backwardation is the opposite: forwards below spot, which in metals signals that borrowing the physical metal has become unusually expensive relative to dollar funding.
Related Terms: Backwardation, Loco London, Swap Points, Outright Forward. See the full glossary for more.
This is educational content, not financial or trading advice.