Futures expire

Gold and silver can be stored, so physically backed funds exist. Oil, natural gas and crops are difficult or expensive to hold.

Those funds buy futures instead — and because futures expire, they must move into the next contract before they do. That is the roll.

When next month costs more, losses accumulate

Say the front contract is $70 and the next is $72. Rolling means selling at 70 and buying at 72 — a loss every time. That shape is called contango.

Repeat it with the spot price flat and the fund grinds lower. This is what "oil rose but the ETF didn't" actually means.

The reverse, backwardation, makes rolling profitable — but contango is the more common state in commodity markets.

How big is it?

In steep contango the annualised drag can reach double digits — far more than the expense ratio.

It is worst after a crash, when futures price a recovery well above the current level.

Which is why commodity futures funds do not suit long holds. They are instruments for a view measured in months.

Alternatives and what to check

Gold and silver funds that hold metal have no roll cost at all, so start there if you want lasting commodity exposure.

For durable oil exposure, funds holding energy producers are an alternative — not a perfect proxy for crude, but with no roll.

If you do buy a futures fund, look at which expiries it holds and whether it spreads across several. More spread, gentler roll.

The problem is that you cannot hold the thing

Gold can sit in a vault; crude oil cannot. So most commodity funds hold futures rather than the physical asset, and that creates a structural cost.

Futures expire. At expiry the contract is sold and the next month's is bought — the roll — and it repeats every month.

The problem appears when next month costs more than this month. The same money buys fewer contracts. With the spot price flat, your holding quietly shrinks.

Contango and backwardation

When further-dated contracts cost more, the market is in contango — common in commodities because storage and insurance are priced in. Every roll in contango loses a little.

When further-dated contracts cost less, it is backwardation, which appears when the physical good is scarce right now. Then rolling actually adds.

That is why 'oil rose but my oil fund did not' happens. Nothing is miscalculated; the roll sits in between, and it compounds the longer you hold.

How to leak less

Gold and silver are the exception. They can be stored, so physically backed products exist and carry no roll cost. Checking physical versus futures should be the first question.

For futures-based funds, look at the maturity structure. Spreading across several expiries suffers less in contango than rolling only the front month — at the cost of tracking spot moves less closely.

The holdings tell you which you have. If you see only futures contracts or swaps, it is futures-based, contribution analysis does not apply, and it must be read through the underlying price and the roll instead.