International gold hedge book continues to shrink By Adrienne Roberts Published: January 20 2003 20:31 | Last Updated: January 20 2003 20:31
The international gold hedge book continued to shrink in the third quarter of 2002, contracting by about 5 per cent, according to a recent study by Haliburton Mineral Services and Virtual Metals.
The research is based on a gold hedging indicator, sponsored by NM Rothschild, which looks at the impact of all contracts a producer enters into using the net delta, which calculates the impact in terms of an equivalent sale of gold into the spot market.
The study, which covers the cumulative hedging activities of 98 gold producers, found that the global hedge book declined by 4.8m ounces (150 tonnes) to 86.6m ounces (2,692 tonnes). From September 2001 to December 2002 the total fell by 15m ounces (466 tonnes).
"We wait with interest to see next quarter's figures, which will reflect in detail the sharply appreciating US dollar gold price seen in the closing months of 2002," said Ted Reeve of Haliburton Mineral Services in Toronto. "We expect this to have a substantial bearing on the next set of calculations."
In terms of years of production committed to price protection programmes, the collective gold producers still had 1.9 years of output tied to hedging but this was down from the 2.2 years of 12 months ago.
Australia's commitment to hedging remained virtually unchanged at 2.8 years.
The report found that the greatest decline in exposure has come from the African-based mining companies, at 1.4 years down from 1.8 years seen in September 2001. Over the 12-month period the Africa hedge book has fallen from 27.3m ounces to just under 21m ounces.
The consolidation in the international hedge book has been a function of the mining industry going through a restructuring, "but the appreciating international gold price over the past two years has certainly played its part", said Jessica Cross, chief executive of Virtual Metals.
"The almost exponential growth in hedging seen in the 1980s and the 1990s occurred in an environment of weaker US dollar gold prices. In an improved price climate, further reductions in the exposure to price protection should not come as a surprise," she added.
