Question

is there a way for a gold producer to manage gold price exposure without resorting to financial contracts?

Answer 1

The most common method for producers of a commodity to hedge their price risk is to use financial contracts called derivatives. For example, a gold producer is exposed to the risk of a fall in gold prices. They can hedge this risk by using forward contracts, futures, or options.

Without  resorting to financial contracts, producers of commodities can hedge their price exposure by entering into short-term or long-term supply contracts with buyers of the commodity. For example, a gold miner can enter into a long-term supply contract with a jewelry manufacturer to sell the gold to the manufacturer at a specified price. If negotiations and logistics permit, even short-term contracts can be employed. By using these supply agreements, the price risk can be managed to a great extent.