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Spot price vs futures price is a distinction that confuses many new commodity investors. Look up the price of gold or oil and you’ll often see several numbers at once. One is the spot price, and the others are futures prices for different delivery months. Understanding spot price vs futures price explains why those numbers differ, which one the headlines are quoting, and why it matters for anything you actually buy, from a gold coin to a commodity ETF.
What is the spot price?
The spot price is the price for buying or selling a commodity for immediate delivery, “on the spot.” The delivery and payment timetable depends on the market and the contract terms.
For gold and silver, the spot price is what dealers and funds reference when they price bullion. The London Bullion Market Association publishes widely used benchmark prices for precious metals, and you can read about how those benchmarks are set on the LBMA website. For many other commodities, the price quoted in the news is actually the nearest futures contract, sometimes called the front month, because that’s where the most trading happens.
Physical spot markets also vary by location and grade. Crude oil loaded at a Gulf Coast terminal, wheat delivered to a Kansas elevator and copper sitting in a Shanghai warehouse each have their own local spot price. The U.S. Energy Information Administration publishes daily spot prices for crude oil and refined products at several delivery points, which is a useful way to see how much location alone can change a quote.
What is the futures price?
A futures price is the price agreed today for delivery on a specific future date. The CFTC explains that a commodity futures contract fixes the price and amount at the time of the agreement, even though delivery happens later.
Each delivery month has its own futures price. Together, those prices form the futures curve. A crude oil curve, for example, might list a price for every month over the next year and then quarterly or annual points stretching several years ahead. Check volume and open interest for each month. A distant contract can have limited trading, so an old last-traded price may not be executable now.
Spot price vs futures price at a glance
| Spot price | Futures price | |
|---|---|---|
| Delivery | Now (within days) | A set future date |
| How many | One current price per location and grade | A different price for each delivery month |
| Used by | Bullion dealers, physical buyers and sellers | Hedgers, speculators, futures-based funds |
| Reflects | Current supply and demand | Current price plus expected costs and conditions to delivery |
Why the two prices differ
Futures prices usually aren’t a forecast of where the spot price will be. They reflect delivery terms, carrying costs, supply conditions and market expectations. CME explains the carrying-cost and convenience-yield relationship in its guide to contango and backwardation.
- Storage costs. Holding oil, grain or metal costs money for tanks, silos or vaults, plus insurance.
- Financing. Money tied up in inventory could otherwise earn interest. Higher interest rates tend to widen the gap.
- Convenience yield. When supplies are tight, having the commodity in hand now is worth a premium. That can push spot above futures.
The difference between the spot and futures price is called the basis. As a contract approaches expiry, its futures price tends to converge toward the spot price, for the deliverable grade and location, subject to the contract’s settlement terms. Anyone who could buy spot and deliver into an overpriced futures contract would do so, and that arbitrage pulls the two together.
A worked example of the basis
Suppose, purely as an illustration, that gold trades at a spot price of 2,000 per ounce and the futures contract expiring in six months trades at 2,050. The futures quote is 50 above spot. Under the cash-minus-futures convention, the basis is minus 50. Carrying costs are one possible explanation; the quotes alone do not prove how much each component contributes. If interest rates rose sharply next week, higher financing costs could put upward pressure on that gap, other things equal, because carrying gold just became more expensive.
Now suppose a refinery outage makes diesel scarce. Buyers who need fuel this week will pay up for immediate barrels, so the spot price jumps while the futures contract for delivery in six months barely moves. In that case the basis flips: spot is above futures, and the convenience of having fuel now is worth more than the cost of storing it.
Contango and backwardation in one line each
- Contango: futures prices are above spot, usually because of carrying costs.
- Backwardation: futures prices are below spot, often because current supply is tight.
Our guide to crude oil trading basics covers how these shapes play out in oil specifically.
How to read a futures curve in four steps
- Find the front month. This is the nearest contract still trading and the one most quotes refer to. Check its expiry date, because the front month changes roughly every month.
- Compare it with spot. If a spot quote exists for the commodity, note whether the front month sits above or below it. That tells you the near-term basis.
- Look at the slope. Rising prices out along the curve mean contango; falling prices mean backwardation. Many curves are mixed, with backwardation at the front and contango further out.
- Check the volume. Thin, distant contracts can show odd prices simply because few people are trading them. Treat the far end of the curve as a rough guide, not a precise forecast.
Why spot price vs futures price matters to you
If you buy a futures-based commodity fund, your returns depend on futures prices, not spot. A futures-based product can be affected by contract price changes, rolling between months, fees and any return on its cash collateral. Its own prospectus should explain which contracts it holds and how it rolls them. When futures trade above spot, rolling contracts can drag returns below the spot move. Over long periods in a contango market, that drag can be substantial, which is why a fund can lag the headline commodity price even when it tracks its index perfectly.
If you buy physical gold or silver, you’ll pay a dealer premium over spot and receive a separate dealer buy-back quote when you sell. The spot price is a reference point, not the price you actually transact at. Comparing premiums between dealers, rather than the spot quote itself, is where you can save money.
If you read market news, check which price is quoted. “Oil fell 2%” usually refers to the front-month futures contract, not a spot price. Around contract expiry, the front month can roll to a new month and the quoted price can jump or drop for reasons that have nothing to do with the market moving.
If you run a business that uses a commodity, the futures curve is a planning tool. A bakery that sees wheat in steep contango still needs a supplier quote for flour; wheat futures alone do not determine that delivered price, and can decide whether that certainty is worth paying for.
Common mistakes to avoid
- Treating the futures price as a forecast. A futures price well above spot usually reflects carrying costs, not a market consensus that prices will rise.
- Expecting a commodity ETF to match the spot price. Futures-based funds track the futures curve, including roll costs. A physically backed product has different tracking risks, including fees and the relationship between its share price and asset value.
- Ignoring expiry. Holding a futures contract into its delivery period can lead to physical delivery obligations or forced liquidation by your broker.
- Mixing up locations and grades. A quote for Brent crude in the North Sea is not the same as West Texas Intermediate at Cushing, Oklahoma, even though both are “the oil price.”
- Comparing a per-gallon product price with a per-barrel crude price. Always convert to the same unit before judging the gap.
Frequently asked questions
Is the futures price a prediction of the future spot price?
Not exactly. Futures prices largely reflect today’s price plus carrying costs and current supply conditions. They change constantly as new information arrives, and the far end of the curve is driven as much by hedging demand as by anyone’s forecast.
Why is the gold futures price higher than spot?
Storage, insurance and financing can contribute to gold futures trading above spot. Check the actual delivery months and current quotes before describing the curve.
Which price do gold ETFs track?
Physically backed gold ETFs track the spot price of the bullion they hold, minus fees. Futures-based gold products track futures prices and are affected by roll yield.
Can spot and futures prices move in opposite directions?
Yes, briefly. A sudden shortage can lift spot while distant futures stay flat, or a change in interest rates can move futures while spot is unchanged. Over time the two tend to move together because arbitrage keeps the basis within limits.
The bottom line
A commodity has more than one price because delivery timing has a cost and a value. Spot is the price for the commodity now; futures prices are the cost of agreeing today for delivery later, and the gap between them, the basis, reflects storage, financing and how tight supply is. Once you know which price a quote refers to and which price your investment actually tracks, most of the confusion around spot price vs futures price disappears.
Trading commodities involves risk. Past performance does not guarantee future results. This article is general information for education only and is not financial advice.
