Global Gold Hedge Book Drops Just 31 Tons in Q2 - SocGen

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"The option change may seem at first glance to be counterintuitive, but reflects the higher gold price at the end of the period. . ."

The latest quarterly hedge book analysis from Société Générale, using figures compiled by independent research house GFMS Ltd in conjunction with Brady plc and its risk management software, shows that the outstanding delta-adjusted global mining hedge book contracted by just 33 tons over the first half of the year, and a similar volume is expected for the second half.

The net forward position contracted by 10% or 31 tons in the second quarter, while the delta-adjusted options book increased by 3% or five tons, leaving the outstanding book at 458 tons, or roughly 20% of global annual mine production. The option change may seem at first glance to be counterintuitive, but reflects the higher gold price at the end of the period (final Q2 fix was $934.50, while the first quarter closed at $916.50, a quarterly increase of 2%).

The marked-to-market liability of the book contracted very slightly, to minus $5.3 billion at the end of the second quarter, while producers' realized prices averaged $908.43.ounce for the hedged producers studied, just 1.5% below the spot average of $922.18 for the period.

The major contraction in the outstanding forward position was driven by the increase of the AngloGold Ashanti long forward position (which has been treated mathematically as hedge lifting, reducing the company's net forward position by 22 tons), combined with other miners' scheduled delivery into expiry. Limited hedging activity was also identified for the second quarter, including Silver Crest Mines (two tons of forwards over three years at its Mexican subsidiary), and Zijin Mining, which raised its forward sales position from less than one ton at end-December to two tons at end-June, an adjustment that has been taken into the second quarter for this analysis. Coeur d'Alene increased its gold sold call position by almost one ton in nominal terms over the quarter.

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