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To: carranza2 who wrote (95086)	9/29/2012 11:46:10 AM
From: Tommaso	Read Replies (1) \| Respond to of 219794

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.

To: carranza2 who wrote (95086)	9/29/2012 11:51:10 AM
From: Tommaso	1 Recommendation Respond to of 219794

Here's something NGD was doing a few years ago: Forward Gold Sales Contracts Under the terms of the term loan facility (as discussed above), WMM was required, as a condition precedent to drawdown the loan, to enter into a gold hedging program acceptable to the banking syndicate. As such, at the time of the agreement, the Company has executed gold forward sales contracts for 429,000 ounces of gold at a price of $801 per ounce. The gold contracts represented a remaining commitment of 5,500 ounces per month for 66 months with the last commitment deliverable in December 2014. The Company settles these contracts, at the Company's option, by physical delivery of gold or on a net financial settlement basis. As at June 30, 2009, the Company had remaining gold forward sales contracts for 363,000 ounces of gold at a price of $801 per ounce at a remaining commitment of 5,500 ounces per month for 66 months. Realized gains of $0.7 million were recognized for the three month period ended June 30, 2009. The remaining contracts were marked-to-market as at June 30, 2009 using a spot price of gold of $934 per ounce. The cumulative unrealized loss of $54.5 million has been disclosed as a liability as at June 30, 2009 and the Company has recorded an unrealized and realized gain of $8.2 million.

To: carranza2 who wrote (95086)	9/29/2012 11:58:26 AM
From: Tommaso	Respond to of 219794

Under the terms of the term loan facility entered into by Western Mesquite Mines, Inc. (“WMMI”), as a condition precedent to drawdown of the loan, WMMI entered into a gold hedging program required by the banking syndicate. As such, at the time of the agreement, the Company had executed gold forward sales contracts for 429,000 ounces of gold at a price of $801 per ounce. New Gold assumed the liability upon acquisition of Western Goldfields Inc. on May 27, 2009. As at December 31, 2011, the remaining gold contracts represent a commitment of 5,500 ounces per month for 36 months with the last commitment deliverable in December 2014 for a total of 198,000 ounces. The Company’s gold hedge contracts did not initially meet the criterion in IAS 39 and therefore were not designated as cash flow hedges. Accordingly, the period-end mark-to-market adjustments related to these contracts were immediately reflected on the statement of operations of the Company as unrealized gains or losses on gold forward sales contracts and the cumulative effect was reflected as an asset or liability on the balance sheet. On July 1, 2009, the Company’s gold hedging contracts met the requirements for cash flow hedges under IAS 39. Prospective hedge effectiveness is assessed on these hedges using the hypothetical derivative method. The hypothetical derivative assessment involves comparing the effect of theoretical shifts in forward gold prices on the fair value of both the actual hedging derivative and a hypothetical derivative. The retrospective assessment involves comparing the effect of historic changes in gold prices each period with changes in the fair value of both the actual and hypothetical derivative. The effective portion of the gold contracts is recorded in Other Comprehensive Income until the forecasted gold sale impacts earnings. Where applicable, the fair value of the derivative has been evaluated to account for the Company’s credit risk. On December 16, 2010, a portion of the gold hedges with two counterparties who had previously been lenders in the Mesquite project financing was moved to one of the new banks included in the Company’s revolving credit facility. This resulted in a de-designation and subsequent immediate re-designation of the hedge position. On re-designation, the Company continued to meet the criteria for hedge accounting under IAS 39 in accounting for its gold hedge. As such, the Company continues to account for the hedges in the same manner as it did prior to the change. The remaining contracts were marked to market as at December 31, 2011 using the December 31, 2011 gold forward curve, resulting in a cumulative unrealized pre-tax loss of $141.6 million that has been disclosed as a liability and a pre-tax adjustment of $9.6 and $23.2 million to other comprehensive income for the year and quarter ended December 31, 2011, respectively.