Answer: higher than the spot price.

## Explanation In commodity markets, **contango** refers to a situation where futures prices are **higher than the spot price**. This is the opposite of **backwardation**, where futures prices are lower than the spot price. ### Key Concepts: 1. **Contango**: Futures price > Spot price 2. **Backwardation**: Futures price < Spot price ### Why Contango Occurs: - **Carrying costs**: Storage, insurance, and financing costs for holding the commodity - **Convenience yield**: The benefit from holding the physical commodity (typically low or negative in contango) - **Market expectations**: Expectations of future price increases - **Supply and demand dynamics**: Current oversupply or future scarcity expectations ### Implications: - Contango creates a **positive cost of carry** for holding commodities - It can lead to negative roll yields for investors in commodity futures - Typically associated with markets where storage is possible and carrying costs are significant This concept is fundamental in derivatives and commodity markets analysis.

Author: LeetQuiz .