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A Complete Guide to the Futures mArket
 3. s preads involving a spot month near expiration can move independently of, or contrary to, the 
direction implied by the general rule. the reason is that the price of an expiring position is criti-
cally dependent upon various technical considerations involving the delivery situation, and wide 
distortions are common.
 4. A bull move that is primarily technical in nature may fail to influence a widening of the nearby 
premiums since no real near-term tightness exists. (
such a price advance will usually only be 
temporary in nature.)
 5. g overnment intervention (e.g., export controls, price controls, etc.), or even the expectation 
of government action, can completely distort normal spread relationships.
therefore, it is important that when initiating spreads in these commodities, the trader keep in 
mind not only the likely overall market direction, but also the relative magnitude of existing spread 
differences and other related factors.
Commodities Conforming to the Inverse of the General rule
some commodities, such as gold and silver, conform to the exact inverse of the general rule: in a ris-
ing market distant months gain relative to more nearby contracts, and in a declining market they lose 
relative to the nearby positions. In fact, in these markets, a long forward/short nearby spread is often a good 
proxy for an outright long position, and the reverse spread can be a substitute position for an outright short. 
in 
each of these markets nearby months almost invariably trade at a discount, which tends to widen in 
bull markets and narrow in bear markets.
the reason for the tendency of near months in gold and silver to move to a wider discount in a 
bull market derives from the large worldwide stock levels of these metals. generally speaking, price 
fluctuations in gold and silver do not reflect near-term tightness or surplus, but rather the market’s 
changing perception of their value. 
in a bull market, the premium of the back months will increase 
because higher prices imply increased carrying charges (i.e., interest costs will increase as the total 
value of the contract increases). Because the forward months implicitly contain the cost of carrying 
the commodity, their premium will tend to widen when these costs increase. Although the preced-
ing represents the usual pattern, there have been a few isolated exceptions due to technical factors.
Commodities Bearing Little or No relationship to the General rule
Commodities in which there is little correlation between general price direction and spread differ-
ences usually fall into the category of nonstorable commodities (cattle and live hogs). W e will exam-
ine the case of live cattle to illustrate why this there is no consistent correlation between price and 
spread direction in nonstorable markets.
Live cattle, by definition, is a completely nonstorable commodity. When feedlot cattle reach mar-
ket weight, they must be marketed; unlike most other commodities, they obviously cannot be placed 
in storage to await better prices. (
to be perfectly accurate, cattle feeders have a small measure of 
flexibility, in that they can market an animal before it reaches optimum weight or hold it for a while 
after. However, economic considerations will place strong limits on the extent of such marketing