Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
The lower gold price is creating future risk among gold mining companies unsure of whether the price could fall further. That has them exploring new ways to lock in revenue, including the prospect of derivatives as hedging vehicles.
According to data from Societe Generale and Thomson Reuters GFMS, options structures comprised 46 percent of the global hedge book by the end of the first quarter, compared to only 16 percent during the first quarter of 2014 and 11 percent in Q1 2013.
Hedging is the most common means of protecting incomes during volatile periods for the gold price, but gold miners that hedged got burnt during the 12-year gold bull run between 1999 and 2011. Those that hedged found themselves frozen out of price increases they could have benefited from, had they not locked in at a lower price.
The global hedge book at the end of March stood at just 6.2 million ounces, from 57.2 million ounces 10 years ago.
Reporting on the trend of increased derivatives, Reuters notes that “options allow miners to put together more complex structures like zero-cost collars to protect revenues.”
“With options, if you just bought puts, you’re paying money for them, but you might be able to cover that by selling calls some way above the market, and giving up some of the upside above that,” the news outlet quotes Mitsui Precious Metals analyst David Jollie as saying. Polyus Gold and OceanaGold are among gold companies that have used collars recently.
2 Comments
Gene Byrge
Two governments, USA AND China, have the self appointed RIGHT ? to print and sell ALL THE BONDS THEY WANT AND CONVERT TO CASH WHAT IS FIAT PAPER MONEY. If gold is up, the buyers will want that instead of fiat bonds/paper money which is essentially worthless. so they conspire to break the law and drive the gold market down. And say that that is within the realm of their purview?????
Tell that to the folks who just lost vast amounts because of the actions of their OWN GOVERNMENT FUNCTIONARIES. Where is the justice?
Bob
Idiots. When will they learn, you can’t “deal” with the dark side’s instruments.
The only way to “deal” with those criminals is to form a production cartel and control the supply released to market.
Kudos to Keith Neumeyer of First Majestic for having the guts to take a stand.
Booo – to the rest of the mining eunuchs too chicken chit to follow his lead.