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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: goldsnow who wrote (42550)	10/9/1999 11:27:00 PM
From: Alex	Respond to of 116763

UBS turns screw on gold firms Swiss bank acts on debts as hedging contracts go sour By Dan Gledhill UBS, the Swiss investment bank, is thought to have tightened the screw on struggling gold producers by calling in debts on outstanding derivatives contracts. Many mining companies took out these complex derivative positions earlier this year in order to hedge themselves against further falls in the gold price. However, gold's sudden recovery in the last fortnight means that these contracts are now heavily in the red. The concern about the ability of gold producers to make good these losses is believed to have prompted UBS to take the unusual step of requiring early margin payments. Among the companies affected is thought to be Ashanti, whose derivatives exposure is reported to total $450m (œ270m). UBS's credit exposure to Ashanti alone is said to be $61m. Other investment banks affected by the malaise in the gold market are Goldman Sachs, JP Morgan and Credit Suisse First Boston. Fears that the gold sector has suffered enormous losses in the derivatives market drove the share prices of producers sharply lower last week. Ashanti, the Ghanian producer which has entered into merger talks with Britain's Lonmin, fell heavily, as did Canadian miners Cambior and Barrick Gold. There is also concern that a number of hedge funds, which had sold gold short to prosper from lower prices, have been caught out by the sudden rally. Gold's recovery, to close on Friday $70 above this year's low at $320.15 an ounce, was prompted by the decision of European central banks two weeks ago to suspend the selloff of their reserves. It brought to an end four years of almost continuous decline, which saw the price of the precious metal plummet from $415 to $250 an ounce. Analysts believe that many gold producers, assuming gold would continue to depreciate, took out derivatives positions so large that they would actually profit from lower prices. One derivatives specialist said: "I think that, judging by the events that have unfolded in the market, the reasonable explanation is that some mines have aggressively over-hedged." It is unclear whether the banks that took out such positions with mining companies and hedge funds decided to cover their risk elsewhere, or chose to leave their books open in the belief that the gold price would come back. UBS declined to comment on its exposure. Most analysts believe that gold's current strength will continue as customers with bearish derivatives positions are forced to buy gold to square their books. However, they remain convinced that by the end of the year the commodity's downward spiral will resume. "Gold won't subside suddenly," said the derivatives specialist. "It is possible that we will see further rallies, but I think we will still find that when it's all over, gold will move below $300 before the end of the year." Lonmin, formed from the old Lonrho mining company, already owns 32 per cent of Ashanti and announced on Tuesday that it is negotiating to acquire the remaining 68 per cent. independent.co.uk