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Inverted Market

An inverted market is a state where current prices, sometimes referred to as 'short-term contracts' are higher than their future or long-term contract price. For example, if the price of gold in one month is higher than it is expected to be in coming months. A normal market or a market at 'full carry' is typically when the spot price is lower than it is for delivery a month in future. The price in a month is, in turn, lower than the price for the following month and so on. However, if the market is below full carry for a sustained period, prices start to converge – a state that's known as 'contango'. Eventually, the market inverts and the spot price becomes higher than the future delivery price. This inverted market phenomenon is known as 'backwardation'.