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

To: John Hunt who wrote (23786)	12/4/1998 5:10:00 AM
From: John Hunt	Read Replies (1) \| Respond to of 116762

Gold hedgers using options more - Gold Institute << Over the past decade, the gold industry has been changing the way it finances future gold production, moving away from traditional hedging methods such as gold loans and forward sales to the use of options, according to John Lutley, president of the Washington DC-based Gold Institute. ''More recently, as gold prices have declined, producers have relied more on options to hedge their production,'' Lutley told the Northwest Mining Association's 104th conference in Spokane Thursday. Options allow a gold mining company to take delivery of gold (a ''call'' option), or to deliver it at a previously determined price (a ''put'' option). By contrast in the 1980's the gold loan was the main instrument used to finance new gold production, followed in the late 1980's by the forward sale. ''Because of the growth of producer hedging in the last decade, something like 60-70 million ounces (1866-2177 tonnes) of gold, mostly borrowed from central banks, has had to be absorbed by the market,'' he said. ''This is separate from the approximately equal amount that has been sold outright by the official sector over the same period.'' Gold miners were likely to make even more use of hedging in the future to finance new production because the slide in gold prices and the volatility in emerging market currencies has meant it has been difficult to attract equity finance recently, Lutley said. Spot gold prices fell to a 19-year low at $270.75 in August this year. ''As for the future, it is not possible to say how soon the hedging business might reach maturity - when growth in hedging equals growth in production - but we have certainly not got there yet, as illustrated by the tremendous rise in accelerated supply last year,'' he said. ''Even among those companies that are already committed to hedging, a large proportion of existing reserves is so far unattached by hedging programs,'' he said. In addition, Lutley noted, the official sector is showing every indication of being willing to continue lending gold to bullion banks for use in the financing of hedge positions. >> biz.yahoo.com