Producer de-hedging slowed in the third quarter, with 2.03 Moz (63 t) removed from the global book. Although a solid reduction, this represented the smallest quarterly cut to the outstanding hedge book since late in 2006. This left the total book, in delta-adjusted terms, standing at 16.92 Moz (526 t) at end-September. In the third quarter net activity was dominated by the holders of the two largest hedge books, AngloGold Ashanti and Barrick Gold, which between them generated 1.76 Moz (55 t) of demand in the market. However, the next most significant news in volume terms was the announcement by Mineral Deposits (see International Mining Project News) of a 0.53 Moz (17 t) project hedge (adjusted for options delta), consisting of forward sales and bought put options. Other small hedges were recorded during the quarter, but these were not of sufficient quantity to outweigh scheduled deliveries into the global book. Elsewhere, active de-hedging was seen from Avocet Mining, ARC Exploration, St. Barbara Mines and OceanaGold.
Producers’ realised prices contracted in the third quarter, along with the lower period average gold price, standing at $832/oz. The marked-to-market value of the book fell to a negative $6.8 billion. In addition, the sensitivity of the options book to changes in the gold price remained largely unchanged from end-June, when the trend of options sensitivity reversed. A retracement in the gold price will still see an increase in the delta-adjusted options volume.
The third quarter began with a strong rally in the gold price, which moved towards the $1,000 mark once again, eventually peaking on July 15 at $986. Subsequently gold fell markedly to an 11-month low of $740.75 on September 11, but after a sharp rebound following the collapse of Lehman Brothers, gold ended the quarter at $884.50. Although the period average, $871.60, represented a 3% retracement from Q2, it still represented a gain of 28% year-on-year.
Prices expressed in other currencies were stronger in the third quarter. The producing countries’ currencies showed marked weakness, partly due to the downturn in commodity prices, but prices in the consuming markets also climbed. For example, the Indian rupee price rose by 2% quarter-on-quarter. Q3 price volatility rose markedly year-on-year, while lease rates were also extremely volatile, spiking to levels not seen since 2001. For more detail see http://www.gfms.co.uk/