JOHANNESBURG (miningweekly.com) – Despite the lower gold price, gold producers continued to close out their hedge contracts in the second quarter of the year, research firm Thomson Reuters GFMS and Societe Generale’s global delta-adjusted global hedge book shows.

Thomson Reuters GFMS noted on Thursday that the delta-adjusted global hedge book had fallen by 352 000 oz in the first quarter of the year.

This left the outstanding delta-adjusted hedge book standing at just 3.59-million ounces, a decrease of 9% quarter-on-quarter. Much of the net decline was attributable to a reduction in the level of delta-hedging against producers’ option contracts, which fell by 43%.

During the first quarter, the gold price held up well compared with recent sharp declines, but had since embarked on an overall downward trend.

“While it could be expected that the second quarter would have seen a large amount of hedging corresponding to the sharp price falls, we have not seen this announced in the market. Indeed, current activity indicates that, during April, producers took the opportunity to close out hedge contracts, particularly Australian miners,” the report added.

The analysis further stated that the gold price’s continued fall in recent weeks towards the $1 200/oz mark and still no flurry of reported hedging activity in the market, could result in many miners missing the opportunity to secure historically elevated prices, unless prices recovered significantly.

The peak gold price for the first quarter, as well as for the year to date, of $1 694/oz, occurred in January and, by the end of the period, the price had fallen to $1 598/oz, passing a low of $1 574/oz in March.

During the first quarter, a number of macroeconomic indicators pointed towards an improving global economic outlook. Further, concerns about quantitative easing programmes leading to high inflation were not realised.

Consequently, sentiment towards gold remained weak, with the predominant influence being a strengthening US dollar and increasing US bond yields.

The report stated that Australian dollar denominated put and forward sale contracts became increasingly “in-the-money” during the second quarter, with several companies taking advantage to either remove hedge cover for strategic reasons or to pay down debt to strengthen balance sheets.

Besides Australian companies, extra dehedging activity has been sparse, notably Nordic Gold Mines, which settled its second quarter obligations in April in advance of its delivery dates.

In contrast, the most significant hedge following the price drop, had been an additional 96 000 oz of forward sales entered into by London-listed mining and exploration company Petropavlovsk. This extended the company’s hedge cover out to the second quarter of 2014. Another significant hedge was the 30 000 oz of hedging from Africa-focused Shanta Gold to manage against price volatility out to early 2014.

The delivery profile during the quarter indicated that about 1.64-million ounces of hedges were due to expire or be delivered into during the remainder of 2013.

“We believe that further to these reductions, there will be a small amount of ongoing project hedging, while some contracts will be restructured or deferred for delivery... activity for the full year would likely end up on the demand side of the market, with continued net dehedging of about 640 000 oz for the full-year, although there is scope for this figure to be exceeded if producers continue to reduce hedge cover further beyond the run rate,” the report stated.

It was, however, highlighted that the severe drop in the gold price had yet to materially alter the exposure of the aggregate options book, with only a modest rise in the net book delta driven by higher exposure of the bought-put component. This paled in comparison to the magnitude of producers’ deliveries and book restructures this year.