Chartered Financial Analyst Level 2
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11 A short position in a gold futures contract is most appropriate for a:
Exam-Like
A
A gold mining company.
B
B speculator expecting gold prices to rise
C
C jewelry manufacturer buying gold for manufacturing.
Explanation:
Explanation
A short position in a gold futures contract is most appropriate for a gold mining company because:
- Gold mining companies are natural sellers of gold - they produce gold and want to lock in selling prices to hedge against price declines
- Speculators expecting gold prices to rise would take long positions, not short positions
- Jewelry manufacturers are natural buyers of gold and would take long positions to hedge against price increases
Gold mining companies use short positions to protect against falling gold prices, ensuring they can sell their production at predetermined prices.
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