Consider that the price for your gold can vary by the time you sell your nuggets. If gold is $1,000 per ounce now, will it go up to $1,500 per ounce, or will it go down to $500 per ounce? Maybe you are confident you can extract 100 ounces by the fall, but will you get $100,000, $150,000 or $50,000 out of it, when your costs could be tens of thousands of dollars? If you only get $50,000, you may end up losing money and have some difficulty paying back the loan. So what can you do today about it?
Well, you can obtain a futures contract for a fee, and based on sound advice, where you can guarantee receiving a set future price. On the market, the miner buys a contract for a $1,000 per ounce value in six months. If the price goes down to $500 per ounce, the miner still gets $1000; if the price goes up to $1,500, he will only get the $1,000 contracted. Nevertheless, the futures contract guarantees him a future price of $1,000. This type of contract for a miner is termed “going short.” A short seller makes money if the price falls and losses money if the price increases. But this could be a good deal, if you need what is basically insurance, i.e. a guaranteed price, for your fall output. You repay the loan and hopefully have seed money for next year.
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