Contango
A futures market condition where futures prices exceed the spot price, reflecting carrying costs over time.
What is Contango?
Contango is a market condition in futures markets where futures contracts trade at a premium to the current spot price, reflecting the costs of storing, insuring, and financing physical inventory until future delivery. It is the normal state for storable commodities and non-dividend-paying assets. Investors who roll long futures positions in contango markets incur a "roll yield drag" as they sell lower-priced expiring contracts and buy higher-priced new ones.
Example
Gold often trades in contango. If spot gold is $1,900/oz and the 12-month futures contract is $1,950/oz, the $50 difference represents storage fees, insurance, and the cost of capital for a year — compensating those who hold and deliver physical gold at maturity.
Source: CME Group — Gold Futures