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Worldwide gold hedging falls 7 pct in Q2-GFMS
Friday August 22, 12:35 am ET


SYDNEY, Aug 22 (Reuters) - The number of gold hedges worldwide was cut by 5.2 million ounces in the second quarter, underpinning a rally in bullion markets, consultants Gold Fields Mineral Services Ltd (GFMS) said.
The seven percent decline in hedges takes the total amount of hedging to 69.7 million ounces, or 84 percent of global mine production last year, said GFMS, which conducted its research in association with Investec.

"This fall was due to a continued reduction in outstanding forward sales agreements as well as a strong decline in the delta-adjusted vanilla options hedge book," GFMS said in a statement.

Delta hedge options are based on measuring how much an options price will change over a specified period of time.

Forward sales hedging involve selling yet-to-be-mined nuggets at a preset price. The tactics protect miners when prices fall, but can limit revenue or force holders to buy high and sell low when gold goes up.

"Perhaps against expectations, the scale back that occurred in the three months ending June 2003 exceeded that of the first quarter, GFMS said.

North American producers, in particular, reduced the nominal volume of their sold call options by some 25 percent in the April-June period, GFMS said.

Newmont Mining Corp (NYSE:NEM - News), the world's largest gold miner, in the last several months has closed the remaining hedge positions held by Australia's Normandy Mining, once totalling about 10 million ounces. Newmont acquired Normandy last year.

Number two miner AngloGold Ltd (ANGJ.J) removed about 800,000 ounces of gold from its hedge book in the last quarter, leaving it with 8.3 million ounces pre-sold and was continuing to unwind positions.

"Although the market rally that occurred in April and May 2003, taking the price to $370 an ounce was closely related to (U.S.) dollar weakness and fund buying in response to geopolitical concerns, the continued and substantial level of producer de-hedging has provided and important and solid support to gold prices," GFMS said.

The second-quarter decline marked the seventh successive quarter that the level global hedges had fallen, according to GFMS.

Spot gold (XAU=) was fetching around $361.50 an ounce in Asian markets on Friday.

http://biz.yahoo.com/rm/030822/minerals_gold_hedges_1.html