Gold producers seen changing hedge profile-analysts
DUBAI, Feb 20 (Reuters) - Gold producers are likely to make changes to the way they hedge as well as cutting back positions, but the process will not disappear altogether, bankers and analysts said on Sunday.
"I am anticipating a less complex but longer-dated hedge book to begin emerging in the near future. Thus the profile, rather than mere hedging volumes, could well change," Jessica Cross, director at Virtual Metals, told a London Bullion Market Association meeting in the regional gold trading hub of Dubai.
Gold producers have traditionally been active hedgers, protecting themselves against possible falls in prices by selling future production forward at a fixed price.
But if the price of gold rises, as it has in recent months, this can backfire.
"Producers attitudes towards hedging may be changing...and shareholder pressure post-Ashanti is having an impact," Philip Klapwijk, managing director of Gold Fields Mineral Services, said.
Ghanaian mining company Ashanti Goldfields Co Ltd is suffering financial problems after it was caught out by spike up in gold prices last September.
It was rescued from collapse last week after agreeing a deal with the Ghanaian government, its bankers, its major shareholder and dissident investors after two days of talks.
In recent weeks, some major producers have already said they intend to cut back their hedge positions -- a move which could result in less metal on the market and push up prices.
BUYBACKS CHANGE GOLD MARKET MOOD
"Gold producer buybacks have changed sentiment for the moment," said LBMA Chairman Martin Stokes.
International spot gold was last traded at $304.00/5.50 a troy ounce.
"Positions contracted quite substantially in the last quarter of last year and much the same has happened in the first quarter of this year," Klapwijk said.
"But gold won't stay above $300 if producers turn around and start hedging again," he added.
Cross said gold producers were now extremely wary of the way in which derivatives are created, marketed, priced and then later, managed.
But she did not envisage hedging practices disappearing altogether. Instead, she said she saw a renaissance of hedge programmes dominated by simpler products, rather than the more exotic instruments favoured in the past.
"I also expect that it is going to become more difficult for the producers to secure the gold prices that command a markedly substantial premium over spot," Cross told the conference.
Analysts said that despite the recent announcements of producers reducing or closing forward sales, hedging would remain a significant factor on the gold market.
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