How does contango actually affect the price an ETF trades at?
For example, take the Unites States Oil Fund (USO) that is supposed to track the price for West Texas Intermediate (WTI) crude. It is commonly known that, as futures contracts must be rolled each month, there is an inherent inefficiency. Hence, the value of the fund deteriorates over time. I follow all of that. But what I don't understand is how that actually translates to the price a fund like USO or GLD is traded at.
Is there a sudden "devaluation" every month when they roll the contracts?
Or do investors generally just slowly adjust their valuation in the marketplace over time as the underlying holdings are reduced?
How does the free market generally handle this in real world application?