Precious Metals Sloping Up for 2014

By Commodity HQ  JAN 06, 2014 11:40 AM

Last year was a difficult one for precious metals, but thanks to the process of contango, future prices are moving upwards.

 


As we kick off the New Year, commodity investors are hoping that 2014 brings more favorable returns than its predecessor. Last year was largely marked by dwindling commodity returns with a number of hard assets wreaking havoc on investors and traders across the board. Gearing up for 2014, let's take a look at some of the biggest commodities currently contangoed to help you get prepared for the new year.

Contango is the process whereby near-month futures are cheaper than those expiring further into the future, creating an upward sloping curve for future prices over time. This is often caused by storage costs associated with each individual commodity, but it can also be partly attributed to market expectations of which way that particular asset will move in the future.

For traders utilizing single contracts, contango may not be of major concern, but for those utilizing futures-based ETFs, it is something to take into account. Each month, a futures-based ETF will need to roll out of its current contract and into another future contract (the time span will vary depending on a fund’s strategy). In a contangoed environment, that may force the ETF to sell out of one contract and pay more for another, effectively eating away at a position over time. This means that contango is especially important to ETF investors.

Below is an outline of some of the most contangoed commodities moving into 2014:
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ
No positions in stocks mentioned.