De-hedging accelerates in Q2

Against a backdrop of higher gold prices and lower interest rates, the global gold hedge book saw 5.2 million oz. trimmed from its pages during the three months ended June 30, helping to underpin the yellow metals’ recent rally, reports London-based Gold Fields Mineral Services (GFMS).

Gold Fields’ study, compiled in association with Investec Bank, notes that the second-quarter scale down eclipsed that of the first quarter (5.1 million oz.), despite a 3% increase, to US$346 per oz., in the end-of-quarter hedge book valuation price.

At quarter’s end, the delta-adjusted producer hedge book contained 69.7 million oz., 7% fewer than the previous quarter, and equivalent to 84% of 2002 production. The latest decline represents they seventh consecutive quarterly cut to global hedge positions.

The bulk of the reduction (3.7 million oz.) came via delivery into existing forward sales contracts and buy backs. At the end of June, 51.5 million oz. were covered by forward sales agreements, down 7% from the first quarter. Still, forward sales continue to dominate the hedge book, accounting for some 74% of hedged oz.

The smaller book is also owing to a 1.5 million oz., or 9%, drop in vanilla options (simple put and call options) thanks in large to a 25% reduction in sold call options by North American companies.

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