Why does gold futures almost always trade in contango?

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AcadiFi · Accepted Answer

Gold is a financial asset, not a consumable commodity. Its futures price follows F = S * (1 + r - y) where r is the risk-free rate and y is the lease rate (yield on lending gold). Because above-ground gold inventories are enormous (about 200,000 tonnes versus 3,500 tonnes annual mine output) there is no convenience yield for immediate delivery. Lease rates sit near zero in normal times, so the carry is approximately the risk-free rate.

When 3-month T-bill yields 4.2% and lease is 0.3%, 6-month futures price 1.95% above spot. Aurelio Metals Fund captures this by buying physical at $2,340/oz and selling 6-month futures at $2,385, locking in the spread minus storage (about 0.10% for allocated gold). The only times gold backwardates are acute physical shortages or paper-versus-physical dislocations (brief episodes in 1999, 2008, 2020). Historically, persistent contango with zero lease rates reflects gold's monetary-asset nature: it is stored, not consumed, and supply expands very slowly.

```mermaid
flowchart LR
  Spot[Spot Gold] --> Rate[Plus Risk Free Rate]
  Rate --> Lease[Minus Lease Rate]
  Lease --> Storage[Minus Storage Cost]
  Storage --> Fut[Futures Price]
  Fut --> Contango{Above Spot?}
  Contango -->|Yes| Normal[Contango Regime]
```

Why does gold futures almost always trade in contango?

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