In fact the contract can just be a paper deal, where you receive money if gold prices decline or pay money if gold prices increase. In the later case, there is no problem: the prices have increased, so you can now sell your product for more money in order to pay off the short contract and cover your other costs. In the former case, you are assured a set payment to cover your losses.
Going long is the opposite. Think of an electronics company who uses small amounts of gold in producing complex computer chips. The company would set up a futures contract to bring in extra cash if gold prices go up. This will help them cover a higher price for the gold they purchase for inputs. However, if prices go down, the contract requires a payment of money. But the electronic company should be covered because, after all, the low gold prices negate gold feedstock costs and the company can now afford to pay for the future’s loss.
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