Basis in gold trading
The basis is the difference between the gold futures price and the spot price; it reflects interest and storage to delivery and is traded via EFPs.
Also called Spot-futures spread, Cash-futures differential, EFP
The basis is the gap between a futures price and the spot price of the same asset: futures minus spot. For gold it is normally positive (contango) and equal, approximately, to the cost of financing and storing gold until the futures delivery date. Dealers trade the basis directly through exchange-for-physical (EFP) transactions, swapping a futures position for physical metal at an agreed spread, which keeps the two markets aligned.
How it applies to gold trading
The basis explains why a COMEX chart and a spot chart never match exactly and why the gap changes. If spot is $4,000 and the December contract is $4,045, the basis is $45. As December approaches, the basis shrinks toward zero (convergence). If interest rates rise, the basis for a given maturity widens. If physical metal becomes scarce in New York, the basis can blow out far beyond its interest-rate value, as it does during delivery squeezes.
Retail XAUUSD platforms build their quotes from both markets, so a sudden change in the basis can show up as a spread widening or a small jump on the spot chart with no corresponding news.
Charting the front-month GC price against a spot feed on the same panel makes the basis visible day to day and shows how it narrows into expiry and widens when rates rise.
A common mistake
Calculating profit on a futures position as if it tracked spot one for one. The basis changes over the life of the trade, and convergence is a cost for longs in contango.
See also: Contango, Backwardation, GC futures, Spot gold.
Frequently asked questions
What is a normal basis for gold?
Roughly the dollar interest rate for the period to delivery, plus a small storage component. With rates around 4%, a six-month basis of about 2% of the price would be typical.
What is an EFP in gold?
An exchange-for-physical: a transaction in which a futures position is exchanged for the equivalent physical gold at an agreed basis. Dealers use it to move between the COMEX and London markets.