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Gold/Mining/Energy : A to Z Junior Mining Research Site -- Ignore unavailable to you. Want to Upgrade?

To: 4figureau who wrote (578)	7/10/2002 10:38:45 AM
From: 4figureau	Read Replies (1) \| Respond to of 5423

Pendulum to swing back to hedging By: David McKay >>As for the current bull run in gold, Lowe is even more controversial. He asserts that hedgers have reduced their books for logical reasons but used the reductions as a reason to talked up the price of gold. But Lowe says the pendulum will swing back towards hedging before long as the outlook for gold starts to appear less impressive.<< Posted: 2002/07/09 Tue 20:09 ZE2 \| © Miningweb 1997-2002 JOHANNESBURG – This year's improvement in the spot gold price has not been substantial enough to overturn the much-debated study by the London Business School in which it stated that the impact of derivatives on the spot price of gold is likely to have been well below the 10 to 15 per cent estimate suggested by a simple consumption model of the gold market. According to Steven Lowe, managing director and head of metals marketing (Europe & Africa) for ScotiaMocatta, the overall impact of hedging over the last decade has been around 5 per cent. Lowe was speaking at a recent breakfast briefing in Johannesburg. "My comments outlined the fact that the market seems to have verified this (LBS) conclusion as producers have turned net buyers and yet the market was not rallied substantially," he said. Lowe also estimates that the number of net tonnes bought this year by gold producers will be about 300 tonnes. UK-based consultancy, Gold Fields Mineral Services, calculates that 100 tonnes of gold was already bought in the first quarter of this year. The spot gold price has improved 11.8% per cent this year improving to $313 per ounce after starting at $280 per ounce. The change in attitude to hedging this year is partly a result of the consolidation among producers, according to Lowe, who said consolidation had created stronger companies with less risk to offset. The reduction in exploration expenditures and a number of other more prudent activities by gold producers – inspired by the decline in the spot price of gold – had lessened the need to guarantee a portion of gold producers' revenue. But Lowe asserts that outright leverage to the gold price is not necessarily a guarantee of share price appreciation. Examined over longer time periods, the share prices of well-known hedgers of gold including Barrick Gold [TSE:ABX] have outperformed companies that prefer to stay exposed to the spot gold price. Over a 10, 5 and 2-year timeframe, Barrick has outperformed Newmont [TSE:NEW] for example while some companies that hedge gold have never under-performed the gold price while Newmont has. As for the current bull run in gold, Lowe is even more controversial. He asserts that hedgers have reduced their books for logical reasons but used the reductions as a reason to talked up the price of gold. But Lowe says the pendulum will swing back towards hedging before long as the outlook for gold starts to appear less impressive. He is not alone in his view that it's a matter of time before the logic of hedging gold re-asserts itself. Daryll Castle, a fund manager for Stanlib Asset Management, a South African financial institution, says the time will come when hedged stocks are in vogue based on the fact that no market can continue to rise forever. "When the market's going down and things are looking negative for the gold market, you want the hedged players," he said. mips1.net