'No evidence' gold miners are returning to hedging

Global gold miners' combined hedge book shrunk to its lowest level in at least 11 years during the third quarter of 2013 according the a new report by Société Générale and Thomson Reuters GFMS out on Tuesday.

Net de-hedging continued during the third quarter of 2013, with a 188,000 ounces or 6 tonnes decrease in the outstanding volume of gold sold forward by mining companies.

A total of 25 companies saw reductions to their positions, with the majority of these attributable to scheduled deliveries into maturing contracts.

New hedging was modest in scale, with the largest gains seen for Evolution Mining, Regis Resources and Dundee Precious Metals, who collectively increased their hedge books by 11 tonnes.

Not surprisingly the marked-to-market value of the global producer hedge book fell dramatically, standing at a modest $174 million at the end of Q3, a $248 million reduction since end-Q2.

At end-September, the outstanding global hedge book stood at 2.94 million ounces or 92 tonnes, the lowest volume since the Société Générale and Thomson Reuters GFMS quarterly series began in 2002 and nowhere near the height of gold miner hedging in the Nineties.

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 gold miners lost out on billions of dollars under contracts signed for future delivery well below the ruling price – and often below cost.

Gold majors including Barrick Gold and AngloGold Ashanti and their peers spent billions unwinding hedge books in 2009, but ended up still saving money on the deals as gold's rise still had a good three years to go.

In 2013 market talk of a large-scale return to hedging by producers reappeared as gold began a slide that saw it lose 28% of its value during the year.

But according to the report there is little evidence to suggest that producers are returning to large scale hedging, with only a small number of reports of new hedge positions since the end of period covered by the report.

"During 2013, producers have focused on protecting margins through cost-containment initiatives. We therefore expect net de-hedging to have been sustained throughout the duration of 2013," Société Générale and Thomson Reuters GFMS said.

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