Ted Butler: Test your brain about the future price of silver

Gold producer dehedging seen rising in 2004: GFMS

a href=http://www.reuters.com/newsArticle.jhtml?type=topNewsamp;storyID=4625332...

VANCOUVER, British Columbia, March 22 (Reuters) --
De-hedging by gold producers could this year outstrip
levels reached in 2003, boosted by world No. 2 producer
AngloGold Ltd. as it unwinds contracts to sell unmined
metal forward, a leading mine research group said on
Monday.

London-based GFMS said in a report it expected
de-hedging of between 11 million ounces and 13 million
ounces of gold this year, compared to nearly 10 million
ounces last year.

To protect against future weakness in the gold price,
producers enter into hedging transactions, which include
selling gold forward at set prices and other more
complicated derivative transactions.

With the gold price surging from near $250 an ounce in
early 2001 to above $400 last year, many producers who
are locked into contracts to sell gold at lower-than-market
prices are unwinding these positions -- dehedging --
through various mechanisms to increase their exposure
to spot prices.

Hedging is blamed for stunting demand as gold
purchasers have already bought unmined metal for future
delivery, thus depressing the bullion price. Conversely,
de-hedging stimulates demand and the gold price.

GFMS said that South Africa's AngloGold, following its
recent merger with Ashanti Goldfields Co Ltd., has said
it will bring the amalgamated companies' hedge book
down to a maximum of 30 percent of the merged group's
output over the next five years.

This quot;would suggest a target hedge level for the combined
entity at around 11 million ounces, or some 3.1 million
ounces lower than the reported delta-adjusted position in
December,quot; GFMS said in a report prepared for banking
group Investec.

quot;The rate at which Anglo unwinds this quot;excessquot; hedge
cover could be an important factor in the scale of
de-hedging in 2004.quot;

GFMS said that just over 70 percent of the de-hedging
measured last year came at the hands of four producers:
Newmont Mining Corp., Anglogold, Barrick Gold Corp.,
and Placer Dome Inc.

In 2003, a key driver behind the high levels of de-hedging
were buybacks triggered by mergers and acquisitions.

GFMS said levels of project hedging -- where producers
are required by financiers to lock in a price for a portion
of production -- are expected to be less over the next
two years than the 3.5 million ounces added to the
global book in 2003.

Based on projects in place, GFMS said this type of
hedging could add roughly 2 million ounces to the
global hedge book this year and 1 million ounces
in 2005.

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