With all the discussion on the Internet, some of it confusing, we thought a picture would be worth a thousand words.

Backwardation is when there is a profit to decarry the metal. This is the simultaneous sale of metal in the spot market and purchase of metal in the futures market. Selling is on the bid and buying is at the ask. So the spread one could earn is the decarry: Spot(bid) - Future(ask).

We normally quote this as an annualized percentage (the basis), but we thought we would show the raw numbers. This graph was made about 10:15am ET on March 4.

Sure enough, there is a 76-cent per ounce profit to be made decarrying gold. This is a small number compared to the price around $1600, and it could be easily missed. It is the actual profit one would make in the real market by this arbitrage (not including commissions and fees, which a bullion bank would not be paying).

It is fascinating that it persists. It's been there for weeks! Does no one have gold to put towards this trade? Is there no attraction to a 0.3% annualized return on a risk-free trade maturing in less than 60 days?

Monetary Metals publishes the basis and cobasis with commentary every week (free registration required).