For example, the fact that at the time of writing the price of the December-2016 WTI Crude Oil futures contract is $64.44 does not imply that "the market" expects the price of oil to rise from around $59 (the current spot price) to around $64 by the end of next year.

Silver Price forecast for February 2020. In the beginning price at 17.71 Dollars. High price 19.75, low 17.71. The average for the month 18.50. The Silver Price forecast at the end of the month 18.81, change for February 6.2%. Silver Price Forecast For Tomorrow And Month. S&P 500 Pricing Futures and Forwards by Peter Ritchken 2 Peter Ritchken Forwards and Futures Prices 3 Forward Curves n Forward Prices are linked to Current Spot prices. n The forward price for immediate delivery is the spot price. n Clearly, the forward price for delivery tomorrow should be close to todays spot price. n The forward price for delivery in a year may be further When futures prices are lower than expected spot prices, the situation is called normal backwardation. This should not be confused with a market that is in backwardation which means that the futures price is lower than the spot price. When futures prices are higher than expected spot prices, the situation is called normal contango. Therefore, the futures price for April delivery, which is 3 months later, should be: $100 (1 + .03 – .01) ( (4 – 1)/12) = $100 (1.02) (3/12) = $100 (1.02) (1/4) = $100.50 The above arguments make it apparent that futures contracts of different maturities based on the same underlying asset move in unison. Brent crude oil spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. EIA forecasts Brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020. For 2020, their silver price expectations are $18.60 an ounce, which is almost 21% higher from their previous forecast. RBC bank also increased its silver price forecast for the second semester of 2019 to $17.33 per ounce, compared to the previous $15.75. Regarding its longer-term predictions, silver is expected to trade at $17.50 per ounce in 2020. Let's take a closer look at what a spot price is and why it's important in the commodity futures markets. Understanding the spot price The commodities markets are more complicated than many people

For example, assume the spot price of gold is $1,200 per ounce and it costs $5 per ounce to store the gold for six months. The six-month futures contract on gold, given a risk-free interest rate of 0.25%, is $1,206.51, or (($1,200+$5)*e^(0.0025*0.5)).

The spot price is usually below the futures price. The situation is known as contango. Contango is quite common for non-perishable goods with significant storage costs. On the other hand, there is backwardation, which is a situation when the spot price exceeds the futures price. In either situation, the futures price is expected to eventually Spot Price: A spot price is the current price in the marketplace at which a given asset such as a security, commodity or currency can be bought or sold for immediate delivery. While spot prices “Oil and gas futures, or forward curves, are not true spot price forecasts. In addition to market expectations of future spot prices, other factors influence futures prices. Some of these factors are: interest rates; inflation expectations; storage costs and availability; insurance; hedging effects Brent crude oil spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. EIA forecasts Brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020. For example, the fact that at the time of writing the price of the December-2016 WTI Crude Oil futures contract is $64.44 does not imply that "the market" expects the price of oil to rise from around $59 (the current spot price) to around $64 by the end of next year. 4.The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year.

B. states that the futures price equals the expected value of the future spot price of the asset. Normal backwardation A. maintains that for most commodities, there are natural hedgers who desire to shed risk.

Pricing Futures and Forwards by Peter Ritchken 2 Peter Ritchken Forwards and Futures Prices 3 Forward Curves n Forward Prices are linked to Current Spot prices. n The forward price for immediate delivery is the spot price. n Clearly, the forward price for delivery tomorrow should be close to todays spot price. n The forward price for delivery in a year may be further When futures prices are lower than expected spot prices, the situation is called normal backwardation. This should not be confused with a market that is in backwardation which means that the futures price is lower than the spot price. When futures prices are higher than expected spot prices, the situation is called normal contango. Therefore, the futures price for April delivery, which is 3 months later, should be: $100 (1 + .03 – .01) ( (4 – 1)/12) = $100 (1.02) (3/12) = $100 (1.02) (1/4) = $100.50 The above arguments make it apparent that futures contracts of different maturities based on the same underlying asset move in unison.

When futures prices are lower than expected spot prices, the situation is called normal backwardation. This should not be confused with a market that is in backwardation which means that the futures price is lower than the spot price. When futures prices are higher than expected spot prices, the situation is called normal contango.

For example, assume the spot price of gold is $1,200 per ounce and it costs $5 per ounce to store the gold for six months. The six-month futures contract on gold, given a risk-free interest rate of 0.25%, is $1,206.51, or (($1,200+$5)*e^(0.0025*0.5)). The spot price is usually below the futures price. The situation is known as contango. Contango is quite common for non-perishable goods with significant storage costs. On the other hand, there is backwardation, which is a situation when the spot price exceeds the futures price. In either situation, the futures price is expected to eventually Spot Price: A spot price is the current price in the marketplace at which a given asset such as a security, commodity or currency can be bought or sold for immediate delivery. While spot prices “Oil and gas futures, or forward curves, are not true spot price forecasts. In addition to market expectations of future spot prices, other factors influence futures prices. Some of these factors are: interest rates; inflation expectations; storage costs and availability; insurance; hedging effects Brent crude oil spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. EIA forecasts Brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020. For example, the fact that at the time of writing the price of the December-2016 WTI Crude Oil futures contract is $64.44 does not imply that "the market" expects the price of oil to rise from around $59 (the current spot price) to around $64 by the end of next year. 4.The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year.

Therefore, the futures price for April delivery, which is 3 months later, should be: $100 (1 + .03 – .01) ( (4 – 1)/12) = $100 (1.02) (3/12) = $100 (1.02) (1/4) = $100.50 The above arguments make it apparent that futures contracts of different maturities based on the same underlying asset move in unison.

Pricing Futures and Forwards by Peter Ritchken 2 Peter Ritchken Forwards and Futures Prices 3 Forward Curves n Forward Prices are linked to Current Spot prices. n The forward price for immediate delivery is the spot price. n Clearly, the forward price for delivery tomorrow should be close to todays spot price. n The forward price for delivery in a year may be further When futures prices are lower than expected spot prices, the situation is called normal backwardation. This should not be confused with a market that is in backwardation which means that the futures price is lower than the spot price. When futures prices are higher than expected spot prices, the situation is called normal contango. Therefore, the futures price for April delivery, which is 3 months later, should be: $100 (1 + .03 – .01) ( (4 – 1)/12) = $100 (1.02) (3/12) = $100 (1.02) (1/4) = $100.50 The above arguments make it apparent that futures contracts of different maturities based on the same underlying asset move in unison. Brent crude oil spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. EIA forecasts Brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020. For 2020, their silver price expectations are $18.60 an ounce, which is almost 21% higher from their previous forecast. RBC bank also increased its silver price forecast for the second semester of 2019 to $17.33 per ounce, compared to the previous $15.75. Regarding its longer-term predictions, silver is expected to trade at $17.50 per ounce in 2020. Let's take a closer look at what a spot price is and why it's important in the commodity futures markets. Understanding the spot price The commodities markets are more complicated than many people n The forward price for immediate delivery is the spot price. n Clearly, the forward price for delivery tomorrow should be close to todays spot price. n The forward price for delivery in a year may be further disconnected from the current spot price. n The forward price for delivery in 5 years may be even further removed from the current spot price.

There are 3 hypotheses to explain how the price of futures contracts converge to the expected spot price over their term: expectations hypothesis, normal backwardation, and contango. The expectations hypothesis is the simplest, since it assumes that the futures price will be equal to the expected spot price on the delivery date. In this case, the price of the futures contract does not deviate from the future spot price, yielding a profit neither to the long position nor the short position. For example, assume the spot price of gold is $1,200 per ounce and it costs $5 per ounce to store the gold for six months. The six-month futures contract on gold, given a risk-free interest rate of 0.25%, is $1,206.51, or (($1,200+$5)*e^(0.0025*0.5)). The spot price is usually below the futures price. The situation is known as contango. Contango is quite common for non-perishable goods with significant storage costs. On the other hand, there is backwardation, which is a situation when the spot price exceeds the futures price. In either situation, the futures price is expected to eventually Spot Price: A spot price is the current price in the marketplace at which a given asset such as a security, commodity or currency can be bought or sold for immediate delivery. While spot prices “Oil and gas futures, or forward curves, are not true spot price forecasts. In addition to market expectations of future spot prices, other factors influence futures prices. Some of these factors are: interest rates; inflation expectations; storage costs and availability; insurance; hedging effects Brent crude oil spot prices averaged $59 per barrel (b) in August, down $5/b from July and $13/b lower than the average from August of last year. EIA forecasts Brent spot prices will average $60/b in the fourth quarter of 2019 and $62/b in 2020. For example, the fact that at the time of writing the price of the December-2016 WTI Crude Oil futures contract is $64.44 does not imply that "the market" expects the price of oil to rise from around $59 (the current spot price) to around $64 by the end of next year.