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James Turk: The ''barbarous relic'' isn''t what you think
From Dow Jones Newswires
Wednesday, September 14, 2005
http://sg.biz.yahoo.com/050914/15/3uy86.html
LONDON -- Gold producer de-hedging slowed in the first half of 2005
and was down at 102 metric tons from record levels of 426 tons seen
during the full year of 2004, metals consultancy GFMS said
Wednesday.
Despite this "much reduced" level, GFMS says it's "nevertheless
robust." Dehedging during the first half of 2004 stood at 172 tons.
The net decline in the open forward and options contracts left the
delta-adjusted hedge book as measured at end-June 2005 at a
provisional 1,702 tons, equivalent of 69% 2004 mine production.
The hedge book takes into account changes in the spot price, the
time to expiry and the difference between the strike and spot
prices.
Producers have been reducing their hedge books significantly, which
commits them to sell at a fixed price that may be lower than the
market. Producers buying back their hedges has been underpinning the
market to some extent, but many analysts now say the current cycle
of dehedging is leveling off.
"Placer Dome (PDG) headed the league table of top de-hedgers closely
followed by Newcrest Ltd. (NCM.AU) who reported an 18 ton cut in
their hedge book. Thereafter, declines were limited to single
figures with Newmont Mining Corp. (NBM), Lihir Gold Ltd. (LHG.AU),
AngloGold Ashanti Ltd. (ANG.JO) and Xstrata Ltd. (XTA.LN) all down
by no more than six tons apiece," GFMS said.
The slowdown in dehedging isn't the result of a shift in attitudes
to hedging, GFMS Senior Analyst Bruce Alway said.
"Now in its sixth year of decline, the first half cut in the book
actually represented a more sustainable level of dehedging from the
record highs seen in 2004," he added.
Record levels in 2004 were due to special events such as corporate
merger activity, decisive moves against large positions and the
result of the collapse of Sons of Gwalia Ltd (ASX).
GFMS expects a further 135-160 tons reduction in global hedge book
during the second half of 2006.
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