Robert G. Leslie and Marilyn B. Leslie - Page 6

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          referred to as a "leg".  Id.  If a trader merely bought a long              
          position or sold a short position, he would be said to have                 
          acquired a "simple net position", and the trader would hope to              
          profit by a rise in the price of the commodity underlying the               
          long position or fall in the price of commodity underlying the              
          short position.  Traders who invest utilizing spread positions              
          hope to profit by a favorable change in the price relationship or           
          differential between their long and short positions.  The price             
          differential is a function primarily of the changes in short-term           
          interest rates and the value of the underlying commodity4 and,              
          secondarily, of storage and commission costs.  Since storage                
          costs for precious metals are trivial, the major forces affecting           
          gold futures spreads are gold prices and short-term interest                
          rates.  Id.                                                                 
               A simple commodity spread that has one short leg with a                
          nearby delivery date and one long leg with a more distant                   
          delivery date is often referred to as a "backward spread" since             
          it is profitable when the dollar difference between the price of            
          the two contracts increases after the position is established.              
          Since prices generally increase in a rising or bull market, back-           

          4For example, if spot gold is $400 per ounce, and the                       
          interest rate is 1 percent per month, a 6-month delivery will be            
          priced at $424 [$400 + (1 percent x 6 months x $400)].  Thus,               
          when the number of long contracts equals the number of short                
          contracts, the difference in price between the long and short               
          legs is entirely a function of the interest cost of carrying gold           
          from one futures delivery month to the other.                               

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