Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Follies who wrote (38313)	8/4/1999 4:34:00 PM
From: Zardoz	Read Replies (2) \| Respond to of 116980

WHAT IS A FUTURES CONTRACT? A commodity FUTURES CONTRACT is a firm commitment to deliver or receive a specific quantity and quality of a commodity during a designated month at a price determined by open auction on a futures exchange. For example, someone buying an April Gold contract at $345 an ounce is obligated to accept delivery of 100 ounces of gold during the month of April at a price of $345 an ounce. Someone selling an April Gold contract would be obligated to deliver the same quantity and quality of gold at $345 an ounce. teleport.com But a person can and does close their positions at any time during the contract timeframe. WHAT IS A FORWARD CONTRACT? A forward contract is one which is initiated at one time, and performance taking place at a future time. It always involves the exchange of one asset for another. The price at which the transaction takes place is negotiated at the onset. Payment and delivery of the goods takes place at a subsequent time to the initial contract. I'll pay you $350 to paint my house next week. Note: You may not own the paint now, and as such when you buy the paint, you increase demand for paint at the store. They order more, and if thousands paint at the same time, up goes the price. AKA you are adding support to the spot paint price. If you already owned the paint, they you are less likely to be interested in a forward, since you would be better selling the futures. Since a forward is production sensitive. Maybe the spot paint market collapses? But then there is the reverse as well. Generally a forward contract can't be broken nor closed without a stife penalty!!! Where as a future need only be bought. WHAT IS A COMMODITY SWAP CONTRACT? A swap is a contract between two parties in which the first party promises to make a payment to the second and the second party promises to make a payment to the first. Both payments take place on specified dates. Different formulas are used to determine what the two sets of payments will be. In a forward, the payments are done at the same time, at a future date. But in this example you give me $285/Oz for my gold NOW... I'll give you the gold in X months. This contract is also hard to break, and is the basis for most complex derivatives. So DoubleD's example shows the buy back that Hutch says he doesn't show. DoubleD example shows the Producer closing his contract at Sept 2001 Spot price in September 2001 = $345 In a future contract, he could've, would've, should've closed his contract before climbing to $345. The fact the he didn't buy back in advance suggest that it isn't a future, and that the contract was forced to go to the expiration, creating this loss. Therefore it must be either a forward or commodity swap. Since he recieved payment in advance, and delivery was delayed; it is a Commodity swap. This discussion originated from: #reply-10784572 "what is your take on this and the effect that forward selling has on the gold market?" Note the word Forward selling, not future selling. Most forwards are sold on the premise that you will actually accumalate the commodity to the end of the delivery date. This is why I stated a forward actually supports the price. This is why there ARE no simple hedges. Not that the examples given are hedges. Hutch