All that
Glitters is
Gold
an Silver
There is still a huge demand
for gold and silver. They represent the traditional means of retaining economic
value when financial systems fail or go into hyper-inflation. Gold and silver
have gone down quite a bit recently, but are still far above the price level of
just three years ago.
Commodities are hoarded and
grabbed as representing something real. At least you can have possession of
something valuable if you own gold or sliver. Future trading, options and other
instances of derivatives trading can muddle the issue. A precious metal futures
contract is a legally binding agreement for the delivery of an amount of the
metal at a future date. You can take either a long position, to sell or a short
position, to buy at that date, at a set price. Most of these contracts are never
actually delivered on because the contract is offset before the delivery date.
For example,
trader
Z buys a long contract to sell gold on March 1st, 2007 at $635, in December
2006. He sees the market going down, and on January 1st, he buys a contract to
buy gold (short contract) at $630. In this case there is a profit margin, since
he’s buying it at a lower price than he is selling it, but never actually
delivers physical gold.
The people functioning in
this trading market are generally characterized as hedgers or speculators. The
hedger buy a position opposite to what their position is in the physical market.
Theoretically, the
futures
market is a useful place for people involved in physical goods
to hedge against price fluctuations. In reality, the speculators far outnumber
the hedgers, and have taken over in terms of price movements. A hedger could be
a jeweler or a central bank involved in buying or selling gold as part of its
financial functions. They buy gold for use, but also buy a futures contract if
they think the price will either drop or go up. They can elect to offset this
contract before the day that it is due, or they can let the contract go to full
term and buy or sell the actual gold in the contract. If they buy a contract
saying the price of gold will be at a certain price, and the price goes down on
the market, they in effect end up paying an insurance fee, by being forced to
offset the contract, but if the price actual goes up, they can hold onto the
contract and get physical delivery of the gold at a lower price. Adam Heist has
helped many internet surfers since launching his website
accordia
which details many aspects of the
loans
industry. Adam also prides himself on over-delivering, why not stop by today and
see why.
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