The return of the great gold hedge

In 2012 gold producers cut their hedging activity to the lowest level since research firm GFMS and investment bank Societe General began tracking the data a decade ago.

After falling 21% in the final quarter of 2012, the outstanding producer hedge book now stands at a mere 3.95 million ounces, or 123  tonnes, a far cry from levels of as much as 3,000 tonnes 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.

2013 has seen the market firmly in the grip of the bears, market watchers believe hedging may be making a big comeback.

Resource Investor reports with project finance drying up and production cuts at the major gold miners hedging is becoming an attractive strategy again:

"Mining companies are [now] queuing up at bullion banks to discuss short-term hedging arrangements," says one London bank's trading desk in a note.

"Some forward sellers already sleeping well at nights…others are rushing to lock-in 'good' prices."

Gold lenders are currently enjoying the strongest sustained returns in almost a decade according to data from market makers and other bullion banks, with gold lease rates up and swap offer rates negative.

"Some emerging-market central banks are taking advantage," adds the London bullion bank's note, "getting some yield on their gold reserves" by offering metal for loan.

Gold is down nearly 24% so far this year, but some have now started calling a bottom for the bullion market.

The price of gold has rallied 7.5% since late June, when the yellow metal touched near three-year lows of $1,200 an ounce.