What is backwardation?Backwardation

For the same gold, how far apart should near-month and far-month futures be? The gap is 6 months of interest and storage. If the far month is too expensive, buy near, sell far, and take delivery.

Futures have a "fair value" worked out from interest and storage. When the quote strays from it, borrow to buy spot and sell futures, and the profit is locked in the moment you open.

Physical goods need warehouse space and insurance, and they tie up money. The cost of carry sets the price gap between buying now and buying later.

The futures price isn't the same as the spot price, and the gap between them is the basis. As expiry approaches, the futures price moves toward spot.

Futures expire. To hold for the long run, you close the near month and buy a later month before expiry, which costs money in contango.

Roll near-month futures to hedge for a whole year and the price risk is locked on paper, but every roll costs money and margin needs cash. A hedge can also die from cash flow.