In the futures market, this happens whenever the price of a nearer month's contract goes higher than of months further out, indicating the traders are placing a premium on the price to get that contract NOW. Usually a sign of supply shortages.

For example, if it's now June and the price of August Gold was US$290/ounce and December Gold was US$250/ounce, the price of gold is in backwardation.

Back`war*da"tion (?), n. [Backward, v.i.+ -ation.] Stock Exchange

The seller's postponement of delivery of stock or shares, with the consent of the buyer, upon payment of a premium to the latter; -- also, the premium so paid. See Contango.

Biddle.

 

© Webster 1913.

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