A very interesting (and for hyper-succinct Izabella, lengthy) post....Here's the rest of the story. FT Alphaville delivers the charts:
We theorised on the possibility of some investors playing the contango trade in gold — perhaps from the moment they realised that financing costs would become low enough to make the trade profitable.
And while we stress this is just a theory – here are some interesting charts from Bloomberg showing a big contraction in the spread between the first month contracts and the second month contracts, as well as the second and the third from Lehman onwards — presumably as the arbitrage is eroded.
Part of this will naturally be reflective of lower interest rates post-Lehman, but part of it could also be the result of some institutions capturing a healthy contango trade at a very opportune moment.
First here’s the second month contract versus the third — whose spread reduces just as gold begins its mega rally:
Here, meanwhile, is the first month versus the second month (you’ll note that the more staggered nature of the spread is related with monthly expiry of the front month future):
And here’s the clincher… what has happened between key calendar spreads (which usually trade on a two month spread) in the last week....MORE