Global gold hedge at multi-year low

Allan Seccombe | Tue, 11 Aug 2009 17:40

[miningmx.com] -- ANGLOGOLD Ashanti’s aggressive reduction of its hedge book so far this year has pushed it into second place behind Barrick Gold Corp and helped pull the global hedge book down to 14.7 million ounces by end-June 2009.

London-based VM Group upped its forecast for the number of ounces taken out of the hedge book for the full year to between two and four million ounces compared to an earlier prediction of between one and three million ounces, largely because of AngloGold’s stated objectives of minimising its forward sales of gold.

In the second quarter of the year, the hedge book decreased by 1.2 million oz, again predominantly driven by AngloGold, VM Group said in the BNP Paribas Fortis Hedging and Financial Gold Report.

VM Group estimates AngloGold alone will account for 1.9 million ounces of de-hedging this full year, a move that leaves the gold miner comfortably in second spot of the world’s largest hedgers after being its biggest for a number of years.

Barrick has 5.4 million ounces of forward sales. The next biggest is North America’s Kinross, with 600,000 ounces.

AngloGold aims to bring its hedge book down to 4.1 million ounces by the end of the year, 12 months sooner than it had earlier told the market. In 2005, AngloGold’s hedge commitments stood at just below 12 million ounces.

Early in 2008, AngloGold estimated it would receive a discount of up to 20% to an estimated spot price of around $900/oz that year. The forecast for the second half of 2009 is the discount will be six percent.

The global hedge book stood at a peak of more than 100 million ounces in the second quarter of 2001 when VM Group started compiling records.

As the gold price has risen so mining companies have scrambled to free themselves from their hedge book obligations and gain the best possible exposure to the spot price.

De-hedging is seen as positive for the gold price because mines divert mined gold into reducing their obligations or buy gold on the market to close contracts, which takes physical gold off the market.

Bullion banks, which acted as counterparties in the hedging contracts, then return the gold to central banks from which they borrowed bullion to sell into the market to hedge their exposure to these contracts, VM Group said.

Flows of gold into exchange-traded funds, which have benefited enormously from investors rattled by the state of the global economy, slowed in the second quarter. Purchases of ETFs fell to 47.3 tonnes, a fraction of the 458 tonnes bought in the previous quarter.

In July, a net 41 tonnes left ETFs and this continued into August. It’s not immediately clear if this is as a result of investors seeing signs of recoveries on stock markets or if some of the big financial institutions have sold some of their holdings. Data from funds should come out of the next few weeks, shedding some light on the matter.