Normal backwardation

Normal backwardation, also sometimes called backwardation, is the market condition where the price of a commodity's forward or futures contract is trading below the expected spot price at contract maturity.

Backwardation very seldom arises in money commodities like gold or silver.

In the early 1980s, there was a one-day backwardation in silver while some metal was physically moved from COMEX to CBOT warehouses.

This is the case of a convenience yield that is greater than the risk free rate and the carrying costs.

In Treatise on Money (1930, chapter 29), economist John Maynard Keynes argued that in commodity markets, backwardation is not an abnormal market situation, but rather arises naturally as "normal backwardation" from the fact that producers of commodities are more prone to hedge their price risk than consumers.

This fee was paid either to the buyer, or to a third party who lent stock to the seller.