Must-Read Bloomberg Article on Why Long Term Investors in Commodity ETFs Lose Money | Afraid to Trade.com Blog
“Contango is a word traders use to describe a specific market condition, when contracts for future delivery of a commodity are more expensive than near-term contracts for the same stuff. It is common in commodity markets, though as Wolf and other investors learned, it can spell doom for commodity ETFs.
When the futures contracts that commodity funds own are about to expire, fund managers have to sell them and buy new ones; otherwise they would have to take delivery of billions of dollars’ worth of raw materials. When they buy the more expensive contracts — more expensive thanks to contango — they lose money for their investors. Contango eats a fund’s seed corn, chewing away its value.”
I strongly encourage you read the full article – it’s lengthy but essential for those who have been hurt by these commodity ETFs long term.