Tags: Gold | Mining | Hedging | Bets

Gold Mining Firms No Longer Hedging Bets on Price

Monday, 15 Mar 2010 05:25 PM

Chief executives of gold producers almost always voice bullish sentiments about the price of the yellow metal, but mining executives lately have backed their conviction with actions.

Most gold miners have eliminated or are in the midst of aggressively closing their hedge books.

"You would have to deduce from the actions we have taken in the past year that we are pretty optimistic about where the price of gold is going," said Aaron Regent, CEO of the world's top gold miner Barrick Gold Corp., referring to the elimination of its hedge book ahead of schedule in December.

Mining executives at the recent Reuters Global Mining and Steel Summit expect gold to benefit from a whole host of factors from inflation to currency depreciation, as policy makers use every tool they have to jolt the economy out of the worst crisis since the Great Depression.

Gold hit an all-time high $1,226.10 an ounce on Dec. 3. The metal has since retreated to about $1,109 Monday, but the price of gold has still nearly quintupled since 2001, and hedged miners had lost much revenue with the metal's bull run.

Gold companies typically hedge, or agree to sell gold at a future date at a fixed price, to either finance projects or protect against falling bullion prices. Potential for still higher prices provides a major motivation for gold companies to get rid of their hedge books.

Regent said significant government deficits, currency concerns and stagnant industry growth should provide underlying support to gold prices.

"There seems to be pretty significant support for gold around the $1,100 level. We have seen gold drop down slightly below that, and there seemed to be pretty firm purchasing from places like India and China," Regent said.

Mark Cutifani, CEO of AngloGold Ashanti, Africa's biggest and the world's No. 3 gold producer, has said the company hoped to unwind its hedge book sooner than its previous target of 2014.

Cutifani said gold would trade between $1,000 and $1,200 an ounce this year, and anything under $1,100 an ounce presented the company with an opportunity to trim the forward sales. AngloGold is the last major gold miner to own gold hedges.

Other mining executives and fund managers are also optimistic about the price of gold. Well-known hedge fund managers George Soros and John Paulson are among those who are betting the metal still has legs to go higher.

Richard O'Brien, CEO of No. 2 Newmont Mining Corp., said he expects inflation will wreak havoc as central banks around the world continue to use stimulus programs to spur economic recovery.

"My view is that each country in the world, to some extent, has fueled the reigniting of its economy through issuance of additional currencies," O'Brien said during the summit.

O'Brien said that even though accommodative monetary policy is clearly helping the economy get its feet back under itself, there is a price for doing that.

"The long-term impact of all the stimulus programs that we have seen in the U.S. and in European countries is going to come home to roost."

"And that is why I believe that the $1,500 target over the next several years is something that we can probably reach. I think for this year, $1,000 to $1,250 is a good trading range for gold."

Frank Holmes, CEO of U.S. Global Investors, a top commodity-focused mutual fund company with $2.7 billion in assets, said monetary easing should continue to bolster gold.

"I do believe that the worst is behind us. As we wrestle with this deflationary environment, the governments will continue to print money, and you are seeing this in the debasement of currencies."

© 2015 Thomson/Reuters. All rights reserved.

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