Gold Hedging Still Alive and Well

  1. 404 Posts.
    The following is from "Sanford News" today.(RWE).
    COMMENT: Gold back to life; hedging alive and well
    13:52, Thursday, 6 June 2002

    By Ralph Wragg ... RWE Publisher
    Sydney - Thursday - June 6: Gold has run into a bout of profit-taking which is only natural.
    Traders couldn't resist locking in some gains after the metal had a dream run from around $US300 in the last few months.
    On Tuesday in New York spot gold reached $331.40 oz, its highest level since October 1999.
    Overnight the COMEX spot was $US321.20 oz, down $6.60.
    The volatile activity comes as analysts debate gold's future, apart from the apparent influences of a fluctuating US dollar and its safe haven image triggered by the Palestinian-Israeli conflict and the Indian-Pakistan nuclear confrontation over Kashmir.
    Gold hedging is back on the agenda and it is certainly not dead and buried. The perception among investors has generally been that the major foreign companies that have swallowed most of the significant local
    producers were not into hedging and had curtailed selling forward gold hedging books. In its heyday hedging was supposed to be the key factor with
    producers driving prices lower and lower by not giving buyers a chance to turn the market around.
    Editor of World Gold (a UK Mining Journal publication) Paul Burton picked up some important facts at the recent World Gold Conference indicating that gold hedging is still alive and well in Australia.
    Burton quotes JP Morgan senior gold analyst Geoff Breen who believes gold companies have not discarded hedging. Many Australian and foreign companies who own Australian assets have not changed their hedging policies.
    Breen suggests that in the Australian situation, hedging can still look attractive. He quotes hedging results showing Sons of Gwalia notching up hedging gains of $450 million over 17 years. Goldfields (now AurionGold) made $425 million over the past six years and Normany Mining received a tax windfall of $660 million in 1999.
    Three-to-five year forward prices are near highs, principally due to higher cash interest rates and thus higher contangos. Burton points to a the number of big offshore companies that have acquired Australian producers. This affected hedging as the four largest deals were non-hedgers acquiring hedgers.
    World Gold figures show that 2001 merger and aquisition activity was worth almost $7 billion world wide.
    Out of the 17 deals reported, 12 involved Australian companies or assets being taken over.
    Australia is now a popular hunting ground for international predators meaning that gold stocks will continue to find support despite the latest price glitch.
    Copyright © 2002 RWE Australian Business News. All rights reserved.

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