The Hindu Business Line : No let up in gold producer de-hedging

THERE has been no let up in the gold producer de-hedging. The sustained decline in the global gold hedge book that has occurred over the last 18 months continued into the second quarter of 2003, making it the seventh successive quarter of global producer hedge book reduction. "The global delta-adjusted hedge book was cut by 5.2 million ounces (Moz) or 7 per cent, taking the total to 69.7 Moz or 84 per cent of 2002 mine production," the Gold Fields Mineral Services (GFMS) said in its latest quarterly hedge book analysis.

It was perhaps against expectations that the scale-back that occurred in the three months ending June exceeded that of the first quarter of 2003, the report pointed out adding that the fall was due to a continued reduction in outstanding forward sales agreements as well as a strong decline in the delta-adjusted vanilla options hedge book.

While the largest absolute fall was experienced in forward transactions, vanilla products fell by most in percentage terms, largely due to a sharp fall in the volume of sold call options (with this concentrated in North America). Scheduled deliveries, restructuring and buy-backs contributed to the decline.

Outlining the impact of de-hedging on the gold market, GFMS stated that although the market rally that occurred in April and May, taking the price up to and beyond $370/oz, was closely related to dollar weakness and fund buying in response to geo-political concerns, the continued and substantial level of producer de-hedging had provided an important and solid support to gold prices.

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