The London-based GFMS added that the global hedge book was left standing at 18,81-million ounces at the end of June, which it estimated was the lowest level since 1987.
However, the quarter had held relatively few surprises, as much of the activity had been flagged to the market in the first quarter, particularly AngloGold Ashanti reducing its hedge book by some 2,71-million ounces.
“The second quarter saw a reversal in the trend of hedge book sensitivity: a significant retracement in the gold price would now increase the implied delta of the net options position – the opposite relationship to that of recent years,” noted GFMS in its Société Genéralé Gold Hedge Book Analysis.
“The marked-to-market value of the global book fell to a negative $9,8-billion, as the end-quarter gold price stagnated and the book was reduced strongly – largely due to a large bullion purchase by AngloGold Ashanti to effect their hedge closure, which globally depressed the global average,” continued GFMS.
At the end of the March quarter, the producer hedge book’s value stood at $10,9-billion.
Realised prices were $158/oz lower than those seen in first three months of the year, when the gold price hit record highs. The second quarter began with a further rise in prices, reaching a peak of $946/oz on April 17, however, a marked correction followed with the yellow metal posting a period low of $853/oz. GFMS said that investor activity in gold fell significantly compared with the first quarter, owing to continuing “bad news” relating to the credit crisis.
At end June, the nominal hedge book volume stood at 24,33-million ounces, and option contracts accounted for 11-million ounces, which equalled about 45% of the nominal total, with forward sales making up the balance. AngloGold Ashanti still accounted for a solid majority of the delta-adjusted global options book, despite the miner's significant buy back.
Dehedging was also reported by Equigold and Sino Gold. “The expected development of Newcrest’s forwards elimination was fulfilled, leaving it entirely exposed to any upside in the gold price. In addition, Barrick Gold continued to convert its project gold sales contracts from a fixed, to a floating, price structure. This accounted for another 0,26-million ounces of demand in the market,” said GFMS.
Fresh hedging remained limited, indicated GFMS, and added that gross hedging levels did not prove significant and there was no evidence in a change in attitudes towards hedging by producers.
“Hedges emplaced in the second quarter were either a result of standing company policy to hedge price risk across all metals (such as Boliden), or as a condition of project financing (for example Focus Minerals or Wega Mining),” stated the precious metals consultancy.
In terms of production, GFMS noted that provisional estimates of mine supply indicated a year-on-year decline in global production, although the second quarter saw a recovery from the “considerable losses” seen in the first quarter.
South Africa and Australia experienced continuing production problems, however, the largest loss was encountered in Indonesia, as mine sequencing at the giant Grasberg operation led to a reduction of 0,71-million ounces year-on-year.