Here's something that makes it even more clear. The commercial short positions might also be called forward sales, looks like to me. I wonder which gold producers feel the need to nail down or even out income that way. I haven't got time to start researching all the financial reports of all the companies, but some gold analyst ought to be doing that. Those short positions do reflect a lot of caution on the part of some producers. Some years ago Canadian Oil Sands Trust lost a huge amount of money from unwise hedging on oil prices. They stopped doing that.
The Commission and exchanges grant exemptions to their position limits for bona fide hedging, as defined in CFTC Regulation 1.3(z), 17 CFR 1.3(z). A hedge is a derivative transaction or position that represents a substitute for transactions or positions to be taken at a later time in a physical marketing channel. Hedges must reduce risk for a commercial enterprise and must arise from a change in the value of the hedger's (current or anticipated) assets or liabilities. For example, a short hedge includes sales for future delivery (short futures positions) that do not exceed its physical exposure in the commodity in terms of inventory, fixed-price purchases and anticipated production over the next 12 months.
A long hedge includes purchases of future delivery (long futures positions) that do not exceed its physical exposure in the commodity in terms of the hedger's fixed-price sales and 12 months' unfilled anticipated requirements for processing or manufacturing.
There are a number of technical provisions with regard to the eligibility for hedge exemptions. For example, the treatment of cross hedging and exemptions under special circumstances are reviewed by the Commission on a case-by-case basis.
CFTC Regulation 1.3(z) requires that "no transactions or position will be classified as bona fide hedging...unless their purpose is to offset price risks incidental to commercial cash or spot operations and such positions are established and liquidated in an orderly manner in accordance with sound commercial practices. …"
The exchanges may also grant exemptions for spreads, straddles, arbitrage positions, or other positions consistent with the purposes of position limit rules. The Commission’s Acceptable Practices state that exchanges should establish a program for traders to apply for these exemptions. If the exemption is granted, an exemption level is set at an amount higher than the applicable speculative limit so as not to give a limitless hedge exemption. Exchanges sometimes disallow hedge exemptions or place severe restrictions on exemptions during the last several days of trading in a delivery month.
The Commission periodically reviews how each exchange grants exemptions, how it monitors compliance with its limits, and what types of regulatory action (warnings, fines, trading suspensions, etc.) the exchange takes once a violation of a position limit or exemption is detected.
In the several markets with Federal limits, hedgers must file a report with the Commission if their futures/option positions exceed speculative position limits. 17 CFR Part 19. The report must be filed monthly or in response to a request by the Commission. The report shows traders’ positions in the cash market, and it is used to check whether or not the trader has a sufficient cash position to justify any futures/option position in excess of the speculative position limits. |
