The relationship between spot and futures prices: An empirical analysis

In their recent article, Tilton et al. (2011, Resour. Policy, 36, 187–195) contend on the basis of conceptual and theoretical arguments that spot and futures prices for metals and other commodities should be closely correlated during periods of strong contango and much less correlated during periods of backwardation or weak contango. If true, this hypothesis implies that speculation and investor demand, most of which takes place on futures markets, should affect spot prices much less or not at all during periods of backwardation or weak contango.