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Elouise Fowler: Why investors are sick of gold miners hedging
By Elouise Fowler
Australian Financial Review, Sydney
Sunday, April 23, 2023
China, Russia, and Turkey bought vast amounts of gold via their central banks over the past year to bolster their foreign exchange reserves and diversify against the world's most popular currency, the U.S. dollar.
Demand for gold jewellery in China has rebounded since lockdowns ended there. And fearful investors seeking safety from the global banking crisis have pumped money into physical gold exchange-traded funds, lifting ETF inflows in March for the first time in 10 months.
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These drivers all suggest demand for gold will remain strong, says David Franklyn, managing partner of Perth-based fund Argonaut Resources.
"If you take a long-term view, the world is changing. I reckon we've entered an era of increased political risks," Franklyn tells The Australian Financial Review. "So I think gold -- as a store of value and as a hedge against uncertainty -- is coming back."
If Franklyn is right, why would gold miners choose to lock in prices with multi-year hedging agreements? It's a temptation that other fund managers, such as David Baker, the managing partner of Baker Steel, urge them to resist.
Gold has rallied 10% this year and soft U.S. economic data pushed the gold price to $US2002 (A$2,991) an ounce on Friday, close to its one-year high.
Investors, fuelled by their conviction that the rally has further to run as tumult ripples through global markets, are seeking clean exposure to the precious metal, unencumbered by hedges struck when the gold price was lower.
"What I look for is companies that have zero or moderate levels of hedging, because we're looking for pure gold exposure," says Franklyn, who established a gold fund in November because he thought the sector was undervalued. ...
... For the remainder of the analysis:
https://www.afr.com/companies/mining/why-investors-are-sick-of-gold-miners-hedging-20230418-p5d1dj
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