Gold News

Shrunken Gold Miner Hedge-Book to Stay Shrunk, Says GFMS

DESPITE the Gold Price hitting a new record-high monthly average in each of Oct., Nov. and Dec. 2009, "We have not observed a shift in the attitudes of [mining] producers towards hedging," says GFMS in its latest quarterly report for Société Générale.

"These views remain firmly in line with the anti-hedging sentiment of prospective gold equity investors," the report says.

Fearing further price falls after the 20-year bear market of the 1980s and '90s, the world's major Gold Mining companies had sold forward a total of 3,421 tonnes of production – as yet unmined – by mid-2001.

The new GFMS report now pegs the outstanding total of what little hedging remains at 236 tonnes. Down by 93% from the peak, that's slightly below the estimate made last month by Virtual Metals' Q4 report for Fortis Nederlands.

Barrick Gold – the world's No.1 gold producer, and formerly holder of the largest hedge book – closed out the last 90 tonnes of its fixed-price hedging during November '09.

Coupled with news of India buying 200 tonnes of gold from the International Monetary Fund, that month saw Dollar Gold Prices rise 17% to new all-time highs.

"This leaves 46% of the global hedge book concentrated in the portfolio of one player," says GFMS – world No.4 AngloGold Ashanti.

"The company's strategy has been outlined as ongoing reduction of the hedge book [which it] will opportunistically accelerate over time."

GFMS notes that "alternative, creative sources of funding" – such as gold-denominated bonds, and also 'gold stream' payment for the right of first-refusal on new output – now "negate the need for extensive gold hedging in many cases of gold project financing."

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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