I think its is a no brainer as it is said, that, it you have to sell as much product as you produce in order to finance production, that it forces the price down. All that gold sold forward is bought by people selling gold in order to buy the forward-sold gold. In addition the low interest rates on gold encourages the selling of the borrowed gold to buy other higher interest instruments to make money on the difference between gold's interest and the other instrument's rate
In further addition to this process of selling gold to buy gold, if in anticipation of a price fall, the sale of the gold by the buyer of the forward-gold may be hedged with put instruments. (option to place gold at a present fixed price with a particular buyer at a future time) This forces the still-further sale of gold in order that the person who writes the put can hedge the writing of it.
Explanation: If a person i.e. a put writer, promises to buy gold at certain price from a put-buyer, where is he to get the money , with any certainty to buy that gold at some past-higher-price, should the price fall? He must sell an equal quantity of gold to finance the writing of the put. In order to get that gold the put writer must borrow it!
So a dizzying pyramid of derivatives and cascading gold sales is created when the producer first decides to hedge his production or finance with a "gold loan" or forward sale.
Ultimately, it all works against the producer-price of the metal the miner is trying to make money from. It is self defeating. Only the banker, with all that loaned gold making all that interest, is smiling. As gold lowers in price, it lends credence to the paper he lends being worth the interest.
Can anyone see a manufacturer of say cars, financing his production by the forwards sale of cars? The forward-buyer of this years production in order to get the finance money leases cars and sells them. Then, he further buys options to sell cars in order to make money on the premium he pays the producer of cars on the forward sale. Whenever General Motors tried to sell a new line of cars, it would be forced to compete in a market where the same number or more cars had already been sold. Can you see the price of cars staying at current levels in this kind of market?
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