bb:" Golden Bough "
biz.yahoo.com
I wondered about this - metal producers (not just gold, but also aluminium, etc.) keep what is called a "metal book".
What they do is sell next month's/quarter's/year's metal production at a prix fixe against a short position (say, they "sell CALLs" on the metal futures) taken out on the London Metals Exchange (or, wherever). This locks in a profit; hedges against producer price falling but, loses $ if prices go WAY up REAL quickly.
They can really get stuck if the price they pay for ore (say, bauxite and/or alumina for AA - Alcoa) goes up while they are short (forward) primary metal production; and final insult is cost of Energy, Labour, Capital going up at the same time. Eventually, they manage to turn the behemoth that they're driving around - but it's easy for these nonferrous metal-producer elephants to just become dumbfounded when metal prices change trend.
IOW, if I wuz to buy "gold", I'd buy gold - rather than equity in (hedged) gold metal producers.
-Steve |
