Another large decline in gold hedging


By Nicholas Larkin
Bloomberg News
Friday, November 7, 2008

LONDON -- Gold miners reduced forward sales contracts by 2.3 million ounces in the third quarter to 16.5 million ounces, London-based researcher VM Group said.

The industry's so-called hedge book compares with 29.1 million ounces a year earlier and 41.5 million ounces at the end of the third quarter of 2006, according to the VM report co- published by Haliburton Mineral Services in Toronto and sponsored by Fortis. Toronto-based Barrick Gold Corp. accounted for 1 million ounces of the decline.

"Continued dehedging from Barrick and AngloGold Ashanti Ltd. meant another large quarter of dehedging," VM Group analyst Matthew Turner said in the report. "However, this rate is not sustainable and from now on we are likely to see much lower dehedging volumes."

Forward gold sales usually allow miners to sell the metal at an agreed price at a future date in a bet that prices will fall below the locked-in level. Hedges have been a "bad bet" since 2002, VM Group said in August. Mining companies reduced hedges by 10.3 million ounces in the nine months through September.

Johannesburg-based AngloGold reduced 600,000 ounces of sales in the third quarter by delivering mined gold into maturing contracts and early buybacks, according to the report.

VM Group said its forecast for global dehedging this year remains 12 million ounces or less as dehedging in the fourth quarter should "slow sharply." The slowdown will continue into 2009 as AngloGold will have finished its program.

Gold for immediate delivery, currently trading at about $730 an ounce in London, is headed for its first decline in eight years.

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