Study On Gold Production Enterprise On The Gold Price Fluctuation Risk Management Strategy

Marx once said "natural gold and silver is not money, but money is natural goldand silver", as a carrier of money and wealth, gold is the scale of value. In the era ofcredit currency, gold is the scale of the currency. Different from commodities, it notonly carries the value of usage, but also carries the value of currency and investment.Thus, the formation mechanism of its value is much more complicated than usualcommodities. In this article, the value formation mechanism of gold is first discussed ongeopolitical, economic situation, financial situation and dollar index, the gold price isconcluded to be affected by multiple factors, and the price trend is harder to bedetermined than usual commodities.Then, in this article, the gold price history is reviewed from1970up to now.Before1970, the price of gold stayed around$35per ounce; but with the collapse of theBretton Woods System in1970, gold became free from the REINS. Since1970, goldstarted to go up and down. Between1970and1980, gold price jumped from$35anounce to$850an ounce, up2328%. Huge gold price volatility exposes gold productionenterprise into huge danger. The control of price volatility risk not only determines theprofit, it also helps companies go through extreme risks. When the market is bear, goldproduction companies may default resulting from price volatility; and if the market isbull, gold production companies who sell hedging will lose profits from rising goldprices. How to manage the gold price volatility risk becomes one main theme ofentrepreneurs’ concerns.Under this background this article attempts from the view of gold productionenterprise, attempts to discuss gold price volatility risk management strategy and thenput forward some policy suggestions. In the discussion of controlling price volatilityrisk, four main respects are mentioned: establishment of a sound organizational system,establishment and improvement of risk control system, improvement of price predictingability, and drawing up and implementation of hedging plan, then the whole system isexplained through a specific example. In the end, some suggestions on obstacles withinhedging trades by gold production enterprise are put forward. This article claims that gold production enterprises shall control price volatility riskby hedging, and tells them what to do in the procedure of controlling the risk. This canbe a good advice for gold production enterprises that just went through price slump.