Lesson 3: The Gold Futures Curve: Carry and Stress

Lesson 3 of 10 · about 8 minutes · course overview

Line up every futures month and you get the curve. In gold it nearly always slopes upward (contango) because of carry. When that slope flattens or flips, something unusual is happening in the physical market.

Reading the curve

Annualise the spread between two months, (later ÷ earlier − 1) × 365 ÷ days between them, and you get the implied carry. In a normal gold market it tracks short-term US interest rates minus the gold lease rate.

What changes in the slope mean

• Carry above T-bills: strong demand to hold futures or to finance metal; often seen when buyers rush into futures.
• Carry well below T-bills: gold is expensive to borrow (high lease rates), so physical metal is scarce in the place it is needed.
• Backwardation (near months above far months): rare in gold and a stress signal: someone needs metal now and will pay for it. Episodes of physical squeezes between London and New York have shown up this way.

Using it

The curve is not a forecast of where spot is going: a contract a year out is above spot because of interest, not because the market expects a rally. Use it as a stress gauge. If the curve flattens sharply while price spikes, treat the move as a physical squeeze that can reverse quickly when metal arrives, and size down.