Gold hedging activity remains subdued

Gold producers limited their hedging during the third quarter according to the latest data about forward selling in the gold mining industry from metals research firm GFMS.

The global producer hedge book contracted in the third quarter by 0.20 million ounces (6 tonnes).

Over the nine-months of calendar 2014, an increase of 1.84 Moz (57 tonnes) was recorded. The marked-to-market value of the aggregate producer hedge book grew by $205 million.

GFMS expects for the full year, net hedging in a range of between 1.35 million ounces (42 tonnes) to 1.68 million ounces (52 tonnes).

The outstanding producer hedge book now stands at 4.76 million ounces, or 148 tonnes, a far cry from levels seen before gold began its 12-year upward climb.

Locking in prices and steady cash flow made sense for gold miners when gold was around the $300-level with little prospect of any substantial move higher.

But as gold's bull run gained momentum producers lost out on billions of dollars under contracts signed for future delivery well below the ruling price – and often below cost.

With gold trading not far off four-year lows, there was an expectation that hedging may make a comeback, but so far this has not panned out.

Commenting on gold hedge book activity, Matthew Piggott, Senior Analyst, Precious Metals – GFMS at Thomson Reuters, said:

β€œThe third quarter was a return to trend for producer hedging activity after an eventful second quarter. There is not yet compelling evidence from the market to indicate an extended rise in the volume of hedging by gold miners however. While we may see some isolated instances of companies entering into positions, we maintain our view that conditions in the market are not yet aligned for a return to producer hedging en masse.”