To be a good investor, you gotta be able to speak the language. One term that I will go over in this post is forward hedging.
From Rapid Trends:
"Forward hedging is a form of gold leasing practiced by gold producers. The most famous of these is Barrick Gold, but there are many other producers who partake in forward hedging.
Forward hedging is when a producer presells gold on the spot market that has yet to be extracted from the earth. Most of the buyers want delivery of physical gold. So the producer leases gold from a CB, with the idea that it will pay the CB back with future production."
Barrick Gold, a Canadian firm, is the largest gold mining company in the world. They want to make sure that they make a profit. One way to do this is to control expenses and income. In this case income. So they lock in the price of gold to a buyer before the actual gold is extracted from the earth. This protects Barrick in the event of a large drop in the price of gold.
However, the price of gold has not had lots of downward swings in the price the last decade or so. This makes gold hedging not as useful or attractive to gold producers.
There could be problems with gold hedging. See, the gold is not actually extracted yet. Yet, the gold producer is selling the gold at the open market. So there is this extra supply of gold out there that is not there yet. Or maybe ever because, some could argue that a gold producer could intentionally forward hedge a larger amount of gold than they will actually have. In the short term, this could supress the price of gold.
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Source: http://neilski.typepad.com/chicago_gold_and_silver_i/2012/12/what-is-forward-hedging.html
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