For a long time, “hedging” was a very bad word in the gold mining business. But hedging has enjoyed a small-scale revival as prices plummet back to earth.
However, activity was muted in the third quarter. A new report by Societe Generale and Thompson Reuters GFMS found that gold producer hedging declined by a net 200,000 ounces during Q3. That was due to a slowdown in new hedging, which meant that delivery on prior hedging positions outpaced new ones.
Hedging activity still remains healthy for the year, the companies noted, as there were net additions of 1.84 million ounces in the first three quarters. That would have been an unthinkable amount a few years ago, when the mere mention of hedging would have sent mining investors running for the hills.
Analyst Matthew Piggott of Thompson Reuters GFMS called the slow third quarter a “return to trend” for gold hedging after a busy second quarter. He said there is no evidence of an “extended rise” in hedging anytime soon, but thinks there may be more “isolated instances” of miners entering positions.
“We maintain our view that conditions in the market are not yet aligned for a return to producer hedging en masse,” he said in a statement.
Gold miners can only wish they were hedging back when prices reached US$1,900 an ounce in 2011. It took a major price drop to get some of them into the market.
The total gold producer hedge book stood at 4.76 million ounces at the end of September, according to the report.