Editor's note: Originally published at tsi-blog.com on September 2, 2016
I saw a press release on Friday that boggled my mind. The press release is from Gold Road Resources (OTCPK:ELKMF, GOR.AX), a company in the process of exploring/developing a large gold deposit in Western Australia, and is linked here.
According to the press release, Gold Road is pleased with itself for having short-sold 50K ounces of gold and having given itself the option of short-selling an additional 100K ounces of gold.
Now, it's one thing for a current gold producer to forward-sell part of the coming year's production in order to ensure a certain cash flow, but Gold Road is not a current producer. It doesn't even have a completed Feasibility Study, and is therefore years away from having any production. In fact, there is no guarantee the company will ever have any production.
What the company is doing cannot be called hedging. It is an outright bet against a further rise in the A$-denominated gold price. Moreover, the bet is subject to margin calls, so shareholders better hope the gold price doesn't skyrocket over the next 12 months.
It's quite possible that Gold Road won't be hurt by its bearish gold bet. It's also quite possible that I won't be hurt if I play Russian roulette, but that doesn't mean it's a good idea for me to play.
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