Gold producers are likely 
to reduce their hedge 
positions at a slower pace this year than in 2008, simply 
because of limited scope for 
big cuts, after the widespread reductions of the last three years, metals consultancy GFMS has predicted.

Nonetheless, faced with strong gold prices, miners will still continue to actively buy back positions, the firm said in the latest edition of its ‘Global Hedge Book Analysis’, produced in collaboration with Societé Générale.

“Investors in gold equities still seek exposure to any upward movements in the gold price and, to this end, hedged companies 
will, where feasible, remove positions faster.”

On the possibility for fresh hedging, GFMS comments that there are a number of factors that would limit companies from 
establishing new hedge positions.


“Firstly, investors tend to 
remain opposed to hedging, and this will remain an important factor in companies’ risk management decisions.

“Secondly, current market conditions are less favourable for hedging now than, say, 12 months ago, and the premium that can be secured via the forward curve provides a much diminished 
incentive to hedge.”

There are, however, some 
instances in which miners will need to enter into new hedges, such as when banks require the revenue protection provided by hedging to secure project finance.

Still, overall gross hedging will likely be extremely limited this year, GFMS predicts.

If one looks back at the final three months of 2008, dehedging 
activity slowed once again, with only 1,54-million ounces (delta 
adjusted) removed from the global producer book.

In nominal terms, the value of the global book fell by 2,13-million ounces, according to GFMS data.

Dehedging was concentrated 
among four main companies, led by AngloGold Ashanti and Barrick Gold, but with Kinross Gold and Mineral Deposits also reducing their hedge cover.


For the year as a whole, 11,52-
million (delta adjusted) ounces 
was removed from the global hedge book in 2008.

AngloGold Ashanti and Bar-rick were also the biggest dehedgers for the full year and together accounted for over 7,67-million ounces.

These two companies still hold the largest hedge books, which constitute two-thirds of the global total, GFMS adds.

The dehedging activity in 2008 left the delta-adjusted hedge book at the end of December standing at just 15,52-million ounces), a far cry from the levels of almost 100-million ounces at the beginning of the decade.

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