Greatone - You've sensibly, in my view, qualified your analysis...

Greatone - You've sensibly, in my view, qualified your analysis above with "provided gold prices hold up".

I'll throw in an observation that analysts don't seem to think gold prices will hold up indefinitely. A few I've seen forecast that the gold price will peak later this year or early next year.

Gold stocks are certainly flying high at the moment but if you look at producers whose output hasn't increased dramatically over recent years, the increase in their share-prices haven't replicated the increase they're earning on the gross margin on their gold sales. That indicates to me that there's a lack of belief that the gold boom will continue on for too much longer. It wasn't all that long ago that the gold sector analysts were using USD $1,500 as the longer term average gold price and USD$0.60 and the longer term average price for an Aussie Dollar and plugging AUD$2,500 as the gold price into their analytical models. The current AUD gold price is now twice that figure and for many producers, the gross margin per ounze has quadrupled (and more) since the days when they were receiving around $2,500 per ounze.

In light of this, I'm not so sure there'll be much of a bounce in the VAU share-price just because the hedge book reduces to zero. The reduction is already well known and would be factored into all the clever models the large players use. I really can't see the larger players boosting their holdings in VAU when the hedges drop off unless the gold price is still surging.

For what it's worth, I'm currently well "over-weight gold stocks" and I still rate VAU as a hold but I admit I lightened the holdings in a number of the gold stocks again last week. And I suspect I'll finish this week a tad less overweight gold stocks again. Daily movements in the gold price of well over 1% are exciting but also bloody scary.