Gold dehedging could reach record 15m oz in 2006
Gold dehedging was expected to come close to 15-million ounces in 2006, representing the highest yearly figure of dehedging since the cycle of reducing forward sales began six years ago, the GFMS said this week.
The GFMS, which released its global hedge book analysis for the third quarter of 2006, reported that the expected acceleration in the rate of reducing hedges would follow on a possible dehedging of a further 2,4-million ounces in the last quarter of the year.
This came on the back of high volumes of dehedging in the first half of 2006, when Barrick's buy back of the Placer Dome legacy hedgebook pushed the rate of dehedging up.
But, GFMS reported that dehedging had slowed in the September quarter, with a provisional decline of two-million ounces.
It said that forward sales had, yet again, bore the brunt of the decline, with contracts scaled by 1,7-million ounces. It attributed the bulk of the decrease to scheduled deliveries, but noted that AngloGold Ashanti had made an additional contribution to the decline with a reduction in its longer dated forward contracts.
The GFMS reported that AngloGold Ashanti had led the pack of the de-hedgers, followed by Newcrest, Buenaventurea and Xstrata. AngloGold Ashanti reported a cut to its delta-adjusted position of 0,6-million ounces. The decline was concentrated in the group's forward sales, which were reduced from 4,5-million ounces to 3,9-million ounces. The company's options book, however, measured a smaller increase of 0,5-million ounces.
The world's leading gold producer, Barrick, reported a 0,3-million ounce cut to its corporate gold sales contracts, and also recorded a rise to the floating forwards position. At the end of the third quarter, Barrick's hedge book stood at 13-million ounces, with a large part allocated to long-dated project gold sales between 2010 and 2019. Hedging allowed producers to lock in prices for future output.
At the end of September, the gold price stood at $599,25, some $14,25 lower than the price at the end of the second quarter of 2006. During the third quarter, gold producers realised an average price of $590/oz, some $3/oz lower than the second quarter of the year, but GFMS said that it had still compared favourably to the $6/oz dip in the quarterly average spot price, which was $622/oz in the third quarter.
At $599,25, the priced used to value the options book was, however, about 2% lower than the figure used in the second quarter.
“Much of the slide during the third quarter was driven by investor long liquidation, a fair portion of which came from the fall in the fund long on Comex,” it noted.
GFMS reported that prices below the $600/oz mark, resulted in increased physical activity in the gold market. The quarter saw destocking across the jewellery distribution chain and the report stated that a “true bounce back” got under way in September.
“As a result, jewellery demand in the third quarter improved notably on the depressed second quarter, but this restocking effect looks to have arrived in force to late to generate a year-on-year increase for this sector.”
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