Another article from Miningweb this time on hedging but see also Kaplans discussion of a few days ago on the World Gold Council's report on gold usage. AnnaP
PERTH – The concerted dehedging programs of the world's major gold producers have not had the effect on the gold price many gold devotees had been hoping for. Although the reduction of hedge positions by miners, and therefore selling pressure, has helped boost the gold price, it has been largely kept under wraps by the decline in physical demand, according to a leading gold analyst. The world's top two gold companies by market cap, Newmont Mining [NYSE:NEM] and Barrick Gold [NYSE:ABX], last week added renewed impetus to the dehedging trend with the announcements of their respective 5.9Moz and 1.4Moz restructures of hedge books through scheduled and accelerated deliveries into existing contracts and selective buybacks. This, along with a weaker US dollar and US equities markets and lingering war fears, contributed to the increase in the gold price last week to around US$322/oz. But these favourable factors were somewhat neutralised by news of softer gold demand levels. "Less positive for gold was confirmation that physical gold demand remains extremely poor this year with higher and volatile prices more than offsetting financial and geopolitical concerns," said respected Macquarie Bank analyst, Kamal Naqvi.
He was referring to data compiled by Gold Fields Mineral Services, which showed that both jewellery and investment demand were significantly lower in the June 2002 quarter compared with the corresponding period last year. They were down 15.8 per cent to 580.8 tonnes and 11.7 per cent to 56.8t, respectively, which kind of blows the theory of safe haven buying out of the water.
Rather, less selling by gold producers to the tune of around 300t in the first half of this year had supported the gold price. "Producer dehedging has probably been the biggest positive for the gold market this year," Naqvi said. There had been concerns the dehedging push had run out of steam as the gold price eased into a trading range of around US$305-315/oz. But Barrick and Newmont, with two of the largest hedge books (the latter courtesy of the inherited Normandy book), have thrown their weight behind the dehedging policy. The gold price responded and they have ensured the precedent set by AngloGold – the biggest dehedger in the first half of calendar 2002 with a 4.1Moz reduction in its hedge position – would be maintained.
Total world physical gold demand fell 14.3 per cent or 121.3t to 729t in the June 2002 quarter, which means that for the first half of this year, total physical gold demand has dropped 15 per cent or 267.9t based on a year-on-year comparison, to 1,515.2t. "The explanation given for the extremely poor level of physical gold demand this year is, primarily, high and volatile gold prices in many currencies," Naqvi said.
However, it was interesting to note that in US dollar terms purchases of gold were virtually unchanged at $7.3 billion. "Does this mean that we focus on the wrong figure and should ignore the tonnage actually consumed as simply a result of the gold price?," the London-based analyst hypothesised. If so, he posed a scenario that would no doubt please gold bugs. "Then clearly the best way for gold producers to increase gold demand is to lower the gold price!"
