Gold dehedging stays high

The rate of dehedging in gold remained robust in the fourth quarter of 2004 despite high gold prices during the period and a backlog of a lrage number of restructures and buy backs reported in the first three quarters.

A Gold Fields Mineral Services (GFMS) report said dehedging continued to be high with an estimated 3.6 million ounces (mn.oz) or 113 tonne cut in the delta-adjusted position.

The delta hedging scheme is designed to make the value of the derivatives portfolio insensitive to small changes in underlying prices.

The figure, while roughly 1 mn.oz. or 31 tonne lower than the revised dehedging figure in the third quarter, was the second highest of 2004 and left the adjusted book at 57.1 mn.oz. or 1,777 tonne, equivalent to 72 per cent of the annual global mine production.

The larger than anticipated drop in the last quarter, mainly attributed to gold mining and marketing company AngloGold Ashanti's significant book restructure, left the provisional dehedging for 2004 at 14.3 mn.oz. or 445 tonne its highest since the dehedging cycle began in 2000.

Senior analyst, GFMS, Bruce Alway, said, "The decline was concentrated in the forwards positions, which were cut by just over 3 mn.oz. or around 98 tonne."

The AngloGold Ashanti restructure was of significance owing to higher spot gold.

Prices rallied from $415.65 end September to post a 16-year high of $454.20 in December 2004.

However, new project hedging provided a modest offset to dehedging during the quarter.

Dehedging is expected to slow with approximately 10 mn.oz. or 311 tonne of scheduled deliveries in 2005.

Alway cautioned, "This is a base case assumption and is going to be influenced by opportunistic buy backs and new project hedging."

He added, "Buy backs will depend on the price that gold traces over the next 11 months."