I was reading this article

Below is a small snippet from the article. I'm wondering how Barrick gold could extend the hedge at its own option. How would this be executed and how do they have this optionality?

Gold is sold forward when a miner contracts with a commercial bank to deliver an amount of gold at a future date. The commercial bank then borrows that amount of bullion from a central bank and sells it in the market at the spot price. The money then goes into an interest-bearing account. When the miner delivers the promised gold, he gets the money and most of the interest. The commercial bank keeps a share of the interest and returns the gold to the central bank, with a small amount of interest.

Forward selling made Barrick bulletproof to a falling price. Even if the price rose, Barrick could extend the hedge at its own option until the price returned to a favorable level.

  • From article "An ounce of gold cost $271 in 2001. Ten years later it reached $1,896—an increase of almost 700 percent." Note, a move from $1 to $7 is a 600% increase, not 700%. That was enough for me to dismiss the author as not knowing his stuff. – JoeTaxpayer Nov 12 '13 at 17:34

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