Options, Futures, and Other Derivatives, 10th Edition

5.11 FUTURES ON COMMODITIES

We now move on to consider futures contracts on commodities. First we look at the futures prices of commodities that are investment assets such as gold and silver.6 We then go on to examine the futures prices of consumption assets.

6 Recall that, for an asset to be an investment asset, it need not be held solely for investment purposes. What is required is that some individuals hold it for investment purposes and that these individuals be prepared to sell their holdings and go long forward contracts, if the latter look more attractive. This explains why silver, although it has industrial uses, is an investment asset.

Income and Storage Costs

As explained in Business Snapshot 3.1, the hedging strategies of gold producers ...