I don’t understand all that language either but it sounds like the people who’ve bet gold will down from $840 will get burned and better to minimize their losses now and cover.
That is EXACTLY what that means. Based on this, if you’re betting gold is going down, and you have sold an actual futures contract, you stand to get burned big time. However, if you BOUGHT a futures contract, you expect it to go up, and so could be in a GREAT position to make big $$$ if what they say in this article is true. Been reading lots of stuff on the net lately about people not being able to get actual, physical gold. They may have it on paper, but they aren’t getting the real stuff on hand.
Interesting times, to say the least...
What happens is this:
People who own/trade metals deposit it at the COMEX.
Some people come along and decide that they want to buy “futures”.
Futures means you write a contract with someone to buy something in the future at a fixed price.
Now if the price of the stuff goes down, then the guy who bought the futures contract is SOL. If the price goes up, he can either settle the contract for some extra money or demand delivery of the metals/commodities.
Now it is not unusual for the people who have metals on deposit to write more contracts for futures than they actually have physical metal to sell.
If that happens, and the price goes up large enough, there is a possibility that there might be more demands for delivery than they actually have.
It’s like say I have six eggs but I write a contract to you that Jan 1 I will deliver to you twelve eggs.
Then on Jan 1 you want your eggs.
I give you six and you say wheres my other six and I am forced to go out and try to find 6 more eggs to give you.
But if nobody wants to sell me any eggs, the price could go astronomical.
I’m not a trader and understand things probably only a bit more than you, but I think that’s the gist of it.