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

To: Alex who wrote (45637)	12/6/1999 9:19:00 PM
From: Alex	Read Replies (1) \| Respond to of 116764

Producers resume hedging bets on forward gold sales REUTERS in Sydney -------------------------------------------------------------------------------- Two months after a shock surge in gold prices turned "hedge" into a four-letter word, the idea of producers selling forward gold not yet mined at a fixed price is regaining its popularity. Spot bullion has been on a downward spiral for more than a week and was quoted at US$275.50-$276.50 an ounce at the close in London trading yesterday, compared with New York's close at $279.60-$280.60 on Friday. In addition, the cost of borrowing gold has receded to near normal levels of about 2 per cent from as high as 10 per cent, re-establishing the market contango that keeps hedging programmes in the black. End-of-year figures are expected to show Australian miners have increased their forward positions beyond the 220 tonnes of fresh hedges recorded in the third quarter. "You are going to see more miners taking out hedges," said Patrick Scott, managing director of Australian operations for Otter Gold. "If you are willing to hedge four or five years out, the terms can be very lucrative." In total, Australian miners had hedged more than five years worth of a combined forecast output - 1,500 tonnes, analysts said. Hedging has been blamed by some for placing an artificial ceiling on gold prices and causing financial mayhem for companies caught on the wrong side of the market in a price rally. Last week was the worst for gold in six years as liquidation of long positions shaved $17 off the price, dousing any lingering expectations of a Y2K-inspired rally by the end of this month. When gold was on the up - it rose 23 per cent in 12 days starting in late September, peaking at just under $340 an ounce - many miners closed out or modified their hedge books to gain more upside price exposure. Otter, a 150,000-ounce-a-year producer, saw its hedge book value of about A$30 million (about HK$147.33 million) in June fall into negative territory in October after gold soared. Now with bullion smarting again, the book had regained its value, Mr Scott said. The rally in gold has all but ended, with gold's upside prospects dimming. So why not buy some hedged protection, analysts are asking. "As long as the Dow [Jones Industrial Average] continues to run, gold is only going to go one way," said Keith Goode, a commodity analyst at Bell Securities. The Dow set its eighth-biggest point gain on Friday, and during the session flirted with its record high close of 11,326.04 set on August 25. "Somewhere along the way, gold was recoupled to the idea it was a good buy as a hedge against inflation, and right now nobody's worrying," a bullion dealer in Sydney said. Hedging backfired for those unlucky miners and investors who established hedge books that favoured gold on the downside - Ghana's Ashanti Goldfields was one of the most notable. Otter, hedging 62 per cent of output, saw its forward book value of about A$30 million in June fall into negative territory in October as gold soared. Ashanti said on Friday its counterparty banks had extended until December 17 a deadline for it to pay up for its derivative contracts. Ashanti came close to default after the rise in gold flipped its derivative contracts from profit to loss two months ago. In Australia, Sons of Gwalia is regarded as the best hedged by receiving a gold price above US$404 an ounce regardless of whether gold is at $250 or $400 an ounce.