2. In February, an official of the new mining venture reviews the companys most recent gold production plans. The sales and production projections suggest that the company will have 3,000 troy ounces of newly mined and refined gold available for sale the following July. The executive considers the current price of the August gold futures contract at $1,310.20 favorable, given the companys total production costs of $1,180 an ounce. As a result, the mining executive decides to lock in a profit by hedging his anticipated production. Each contract is for delivery of 100 troy ounces of gold.

a. Explain how this firm can hedge its position against adverse price movements?