Kevin Walmsley

Silver Backwardation: Prices About to Soar

His understanding of backwardation is different from mine, and from most traders and managers I know. Typically, backwardation reflects falling demand for future months, and a collapse in pricing, not a rally. You can take a look at forward pricing in crude in mid-summer, and realize that either fall demand had to pick up dramatically to close the gap, or that the spot market was seeing the highest prices it would for a long, long time.

I'll admit that silver has an investment utility as a precious metal that crude doesn't, but typically backwardation across the futures of any commoditiy is a precursor to a sell-off, not a rally. Be careful.