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Forward selling is profitable because the lenders, primarily central banks, lend with charges lease rates of about 1%, sometimes even less. The borrowers sell the gold with effective returns of somewhere between 6% and 10%, depending on the borrower's credit rating. If the funds from the sales of the gold are invested in high grade bonds, the borrowers receive probably 6% to 8%, for a tidy margin of 5% to 7%. However, if the borrowers use the funds in operations, thereby permitting those to forego borrowing in the credit markets, then they effectively receive higher rates, depending on the companies' credit ratings. Hundreds of millions of dollars are made via forwarding selling. The central banks earn fees on an otherwise "sterile" asset. The mining companies earn 5% to 9%, and the bullion houses that arrange the central bank loans and handle the gold sales earn huge fees. Forward selling pays off like a broken slot machine except for gold mining companies' shareholders. Shareholders lose because forward selling distorts gold's supply/demand fundamentals and puts downward pressure on the price of gold. However, forward selling is not without its risks. If the price of gold rises, the lenders want additional margin deposits, which is what hammered Ashanti and Cambior.
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But why are market makers so happy to take the opposite trade against any client?Don't they know that good traders can have good predictions of the market movements and make a profit?This would make them lose money.
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This may not necessarily be applicable every time, as sometimes the market behaves erratically and you can see some price gaps.
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currency rates today live