CFAI text book, VOl 5, P.173

I don’t understand why Gold’s forward curve is upward sloping (contango), gasoline’s forward curve is downward sloping (backwardation). Could someone help ?

storage costs, transportation costs of oil.

Sorry, I still have some confusion. Future price = Spot price (e)^(r+storage cost)*(t) Higher the storage cost, higher the future price required. Then why forward curve is downward sloping (backwardation)?

I don’t think the CFAI text meant to conclude that gasoline price is backwardation. It says “Forward curves can have portions in backwardation and portions in contango, so does that for corn.” It only meant to say, it could be backwardation for certain time period. A lot of factors drive gasoline forward curve - definitely seasonal factor. You can look at the recent quotes from CME. The price is backwardation for delivery of Apri/2010 - Dec/2011, than, from Jan 2011 - April 2011, it’s contango.