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Gold hedging to fall 300t in 2005
David McKay
Posted: Thu, 28 Apr 2005
[miningmx.com] -- GOLD producers would sell more gold on the spot market and therefore support gold price gains, UK metals consultancy, GFMS, forecast in its annual review. Gold hedging, in which gold producers sell their metal through long-dated contracts, slumped to a 10-year low of 1,779 tonnes in 2004. Although the rate of de-hedging would slow in 2005, the trend would continue to support gold price surges above $454/oz, GFMS said.
Other factors supporting a stronger gold price was the re-emergence of political risk, particularly in the Middle East, and a slowing in official sector sales in the second half of the calendar year. GFMS also said fund buying in commodities would have a collateral effect on gold. “For this reason, GFMS sees considerable scope over the next year for an event-driven spike in the gold price towards the $500 mark,” it said in the summary of its
report.
Primary gold supply, however, was expected to almost retrace the 5% or 128 tonne decline in 2004. Of this decline, roughly 100 tonnes was from production declines in South Africa, Australia and Indonesia. New projects, and the recovery of production at Indonesia’s Grasberg mine and Australian mines, would see supply increase 4% in 2005 to about 2,570 tonnes of gold. But the production declines in South Africa would be “more difficult to reverse,” GFMS said.
Commenting on future hedging trends, GFMS said that in 2005 a further 280 to 300 tonnes of gold would be de-hedged either by buying back positions or non renewal of hedging contracts. “There was an estimated 532 tonnes of de-hedging versus 90 tonnes of new hedging,” GFMS said.
“While this figure suggests that the peak in de-hedging has already passed, at around 300 tonnes, de-hedging should continue to provide an important support for the price this year, especially on dips where buy-backs
could soak up lost demand during periods of weaker investor interest,” GFMS said.
AngloGold Ashanti led the drive towards producer de-hedging in 2005 accounting for 23% of the gross decline in hedged gold accounts. It was followed by Australia’s Sons of Gwalia (12%), Barrick Gold (12%), Placer Dome (10%) and Newcrest (8%).
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