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

To: John Hunt who wrote (33750)5/12/1999 6:11:00 PM
From: Enigma  Read Replies (1) | Respond to of 116767
 
<< They don't profit at all from more falling gold prices >>

They don't, they get the same price whether gold rises or falls. Let' sat the spot price is $265. They sell 1 ounce of gold on the spot market for $265. At the same time they buy back the forward contract for $265 making a profit of $135. Therefore proceeds from the sale of 1 ounce are $135 + $265 = $400. If the spot price goes to $500 they buy back the contract for a loss of $100, but they sell the gold on the spot market for $500. So they still get $400. i.e. $500 - less $100 loss.

This simplifies things assuming that the contracts are bought back on expiry.

Actually Barrick has an options programme in place which enables it to participate if gold goes above the hedged price. dd



To: John Hunt who wrote (33750)5/13/1999 7:36:00 AM
From: donald martin  Respond to of 116767
 
<<'premium' profits were four to five times higher>>

The point is, their total profit is unchanged by moving gold prices. If they're short a contract to deliver with a price of $400, and gold goes to $450, they get $400. If gold goes to $250, they get $400. In the first case you could say their premium profit(loss) is ($50), but they still get $400. It looks fantastic when gold drops that they get some much from 'premium', but that's the point of hedging.


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