Bullion investors are a rare breed, as rare as the bullion itself. Veterans of bullion investors don’t let out the secret of their success. That is why they continue to become rich and never stray out of their golden domain to diversify their investment.

Most of the genuine investors in stocks are likely to panic in case their futures contracts enter an orbit of backwardation. However, long time bullion investors don’t react negatively when their gold futures enter backwardation.

If you reading this blog post to know what exactly ‘gold futures backwardation’ is in stock market, please note that backwardation is a temporary condition in the futures and option market.

If you are an alert bullion investor in futures, you would notice the price difference between the futures of immediate settlements period and long term settlement periods.

By immediate settlement periods, I mean, settlements that are due to expire in the next 3 to 6 months whereas by long term settlements, I mean contracts that are due to be settled after as long as 12 to 36 months.

In futures backwardation condition, contracts that are due to be honored in the immediate period would be trading at a higher rate than long term futures contract.

Most of the times, bullion investors would make good profits during the ‘Contango’ period in which the conditions are opposite to ‘backwardation’. This means the price for long term futures contract would be quoted at higher prices than the near settlement periods.

However, shrewd bullion traders would know how to capitalize during the backwardation condition too and that is a closely held secret.

With advent of Exchange Traded Funds (ETFs), even a small time intraday trader has safely (comparatively of course) shifted to commodities futures market though he still has a long way to catch with veterans with whom the gold dares. The learning curve is pretty steep but possible to traverse.