Having long ago settled down after the turmoil of the early 1980s, gold prices have continued to decline steadily from their recent peak of February 1996, as have prices on the futures market. The difference between the spot and futures price, called the basis, has shown less movement (as expected), although the futures price has exceeded the spot price by a wider margin since late 1996. Normally the ease of storage and large outstanding stock of gold make it a full-carry market, that is, on in which the futures price equals the spot price plus the cost of carry (storage and financing). This implies that futures prices exceed spot prices, producing a negative basis, a situation known to futures traders as a contango.
Suggested citation: “Gold Markets,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-06, pp. 06, 06.01.1997.