Basis and the Negative Thereof


Dr. Fekete uses

Basis = (NearFuture(time) - Spot) in $/troy ounce

rather than the more common

Basis = (Spot – NearFuture(time)).

This does not affect people's use of the terms contango, backwardation, and the rest.

And it permits us to say that basis is the carrying charge, rather than having to say that carrying charge is the negative of the basis.

But terms such as rising, falling, positive, negative, increase, decrease, and others have the potential for confusion!


I have the very greatest respect for Antal Fekete and I owe him much in my quest to understand money and protect my savings.

So imagine my disappointment as in late 2008 I found apparently-conclusive evidence that there is something confusing in most of his excellent expositions of gold basis!!! While I'm certain Dr. Fekete is not confused about the below, I think many if not most of his readers are!

I think Dr. Fekete's several expositions of basis are essential to understanding money and I am greatly saddened by the awareness that my long-standing confusion has probably been shared with most of his readers, particularly those with training in mathematics and also having experience with commodities.

Professor Fekete's resume describes extensive mathematical knowledge, and clearly he himself is not confused. The problem is definitional:

Dr. Fekete consistently uses  Basis = (NearFuture - Spot)
Nearly everybody else uses  Basis = (Spot - NearFuture)

The below will add detail.

I am asking for clarification, and any I get will be used to revise/correct this web page.

  Most sincerely,
     -Fred Chase
     Frederick N. Chase

Dr. Fekete offers us insight into the basis of a commodity , often in the context of the warehouseman.

From a general search ( ) we see that
clearly the general use for basis in the context of commodities and the English-speaking world is (Spot minus Futures) as opposed to (Futures minus Spot).

For example, for the (Spot minus Futures) definition of basis see any of these:

The only use of the minority (Futures minus Spot) definition of basis I've been able to locate are the following.

Nearly every one of them is either by Dr. Fekete or is a reaction/amplification/commentary of his writing!

For many purposes this doesn't matter. Kind of like little endian versus big endian, this issue is buried fairly far down inside what most folks want to think about. In particular, there is no similar lack of agreement on the definition of backwardation and of contango.

However, as an example of the potential to misunderstand what is said about basis we have the following.

Dr. Fekete has said

"... the shrinking contango and the persistent fall in the gold basis is a measure of the vanishing of gold into private hoards."

This is very clear, given Dr. Fekete's definition of basis.

If on the other hand Dr. Fekete used the definition of basis in general use rather than its negative, the following is a correct interpretation (if rather contorted):

"... the shrinking contango and the persistent fall in the [absolute value of the] gold basis [that is, the continuing rise from more negative to less negative to zero and finally to positive values] is a measure of the vanishing of gold into private hoards."