LONDON (Commodity Online) : Renowned researcher GFMS said global gold hedges, or sales of future production, gained about 4.1 percent in the first quarter of 2011.
In an e-mailed report with Societe Generale SA, the researcher said the worldwide hedge book increased about 190,000 ounces to 4.88 million ounces from 4.69 million ounces in the fourth quarter of 2010.
In the first quarter of 2011, producers’ hedging activities were a source of net supply to the market, with 0.19 Moz (6 t) added to the hedge book. This represented only the second quarter in five years when hedging activity has resulted in net supply to the gold market. At all other times in that period, gold mining companies’ de-hedging activities have resulted in a withdrawal of production from the market.
Noticeable in the quarter was the use of option contracts rather than forward sales; four of the top five hedgers in the period used collar option structures to effect price protection to the downside. These companies accounted for a nominal increase in the number of contracts of 1.28 Moz (40 t). However, because the strike
prices of the constituent put and call options lay several hundred dollars below and above the end-Q1 spot price respectively, these contracts have a low delta. Consequently, the net addition to the four companies’ aggregate hedge positions, when adjusted for option delta, is calculated to have been just 0.19 Moz (6 t).
Gold producers sometimes sell future output at fixed prices to secure loans. They can reduce hedges by buying back contracts, adding to demand. Bullion hit new records and set for an 11th straight annual gain, the longest winning streak since at least 1920 in London.
While some recent comments from miners “may suggest a slightly more balanced attitude towards hedging than outright dismissal of the idea, as has been the trend in recent years, there has not been a fundamental shift back to widespread hedging,” the researcher said in the report. “As such, we do not expect a concerted return to hedging in 2011.”
Producers boosted supply by 1.66 million ounces compared with a year earlier after hedging and mine output increases, GFMS said. Companies will de-hedge about 800,000 ounces this year, leaving the total hedge book at 3.88 million ounces, the researcher estimates.
Mining company Boliden AB (BOL), based in Stockholm, added about 330,000 ounces of forward sales in the first quarter, while Toronto-based miner Kinross Gold Corp. (K) cut about 90,000 ounces from its hedge book in the period, GFMS said.
