Why gold producers are dehedging? / Gold vs Dollar: Which will dominate the market?
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Why gold producers are dehedging?
By Madhurima R S MUMBAI:
Does the behavior of gold producers in forward markets offer any clue on the future prices of the precious yellow metal?
According to Quantum Gold Fund, gold producers are reducing their futures commitments significantly. The are reducing the quantity of gold they sell in forward/futures market at a fixed price.
“Gold producers are "de-hedging" . This in simple terms means that they are squaring off their outstanding forward sale positions. i.e. They are buying back gold , which they have sold earlier in the futures market,” Quantum Gold Fund in a communiqué to investors said.
Earlier, gold producers sold most of their future production in the forward. It enabled them to lock-in their profit margins and decide on the quantum of gold they would produce and release into the market in the future.
According to metal experts, the de-hedging process is indicative of the gold producers’ expectation on the future trends in gold prices. If gold producers expected the price of gold to go down in the future, they would have tried to lock-in their future production at the prevailing higher rates. Obviously, by not doing so, since they expect gold prices to go up in the future!, Quantum Gold Fund said.
According to analysts, it is interesting to note that from 2005 to 2007, a majority of the de-hedging activity by gold producers was concentrated in the first half of the year. This could be because the second half of the year saw the maximum surge in prices during most of these years. In previous years, gold producers lost heavily as they locked into lower futures prices in the beginning of the year.
“We saw increased de-hedging activity during the first half of this year. We also saw record high prices during the same period. This implies that producers squared off their forward sale positions, and incurred losses even at higher price levels. This indicates that they expect gold prices to increase much beyond the record highs seen recently”
According to Quantum Fund, the gold producers are in the best position to understand future supply trends. They are aware that it is extremely difficult to find new gold deposits. To extract good quality gold ore, they have to dig deeper in their existing mines. That apart, they are also affected by rise in the cost of production of gold, due to increase in labour costs, exploration costs, power costs, mine rehabilitation costs, etc. In such a scenario, one can only expect gold prices to move upwards over the longer term, Quantum Gold Fund said.
Gold producers know better than others the pulse of the gold market. They have witnessed the huge gold price rise in 1980 which saw gold reaching new highs. They have also borne the impact of the precious yellow metal getting beaten down, on account of intervention by the central banks of various countries, towards the end of the last decade. Therefore, watchout for the hedging-de-hedging activities of gold producers to get a clue in to the future of gold prices.!
__________________________________________________________
Gold vs Dollar: Which will dominate the market?
By Ziad P S
Gold and crude oil have become the hottest commodities in the wake of the global financial crisis brought about by the plunging US economy and collapse of investment banking giants like Lehman Brothers.
Gold and crude oil along with dollar have been dominating the financial news all these days. But which commodity will dominate the global markets?
It is like that that gold will dominate the global markets thanks to the great financial bubbles that the US getting into. Now days the market has shown some volatile signals that when gold is up, the dollar goes down and vice versa. Amid all these, crude oil got modest momentum as it traded higher at major global markets this week.
However because of the volatility in the market, gold dipped below $ 900 an ounce on Tuesday after early buying which propelled the price to a seven-week high; but gold soon lost steam. Now, uncertainties over the US government’s bailout plan may offer support to gold.
Economic analysts express doubts over the strength of dollar as US Treasury Secretary Hank Paulson’s TARP - troubled asset relief program - boosted investment confidence across the world, inspiring some of the biggest one day rises in stocks and equity indices.
They point out that the plan would affect the dollar adversely as it is the biggest currency in the world; it may be difficult for dollar to retain its status as one of the most important currencies in the world now.
|Markets are questioning the potential volume of new US government debt, and the very rapid expansion of the balance sheet at the US central bank, the Federal Reserve. As dollar index hit a low point on 15 July, oil posted its record level of just under $150 a barrel, and gold, which has an especially intimate inverse correlation with the dollar, hit an intermediate peak of $ 977.50 an ounce, close to its March records.
Gold was trading at $895,00 an ounce, down $5,20 an ounce or 0,6 percent from New York’s notional close on Monday, having hit an intraday high of $908,80 an ounce -- its highest level since early August.
However, speculators are taking a bearish view on dollar. That turned gold price from its intermediate low of $ 746.47 an ounce on 11 September, to levels now approaching $900 an ounce..
Why gold producers are dehedging?
By Madhurima R S MUMBAI:
Does the behavior of gold producers in forward markets offer any clue on the future prices of the precious yellow metal?
According to Quantum Gold Fund, gold producers are reducing their futures commitments significantly. The are reducing the quantity of gold they sell in forward/futures market at a fixed price.
“Gold producers are "de-hedging" . This in simple terms means that they are squaring off their outstanding forward sale positions. i.e. They are buying back gold , which they have sold earlier in the futures market,” Quantum Gold Fund in a communiqué to investors said.
Earlier, gold producers sold most of their future production in the forward. It enabled them to lock-in their profit margins and decide on the quantum of gold they would produce and release into the market in the future.
According to metal experts, the de-hedging process is indicative of the gold producers’ expectation on the future trends in gold prices. If gold producers expected the price of gold to go down in the future, they would have tried to lock-in their future production at the prevailing higher rates. Obviously, by not doing so, since they expect gold prices to go up in the future!, Quantum Gold Fund said.
According to analysts, it is interesting to note that from 2005 to 2007, a majority of the de-hedging activity by gold producers was concentrated in the first half of the year. This could be because the second half of the year saw the maximum surge in prices during most of these years. In previous years, gold producers lost heavily as they locked into lower futures prices in the beginning of the year.
“We saw increased de-hedging activity during the first half of this year. We also saw record high prices during the same period. This implies that producers squared off their forward sale positions, and incurred losses even at higher price levels. This indicates that they expect gold prices to increase much beyond the record highs seen recently”
According to Quantum Fund, the gold producers are in the best position to understand future supply trends. They are aware that it is extremely difficult to find new gold deposits. To extract good quality gold ore, they have to dig deeper in their existing mines. That apart, they are also affected by rise in the cost of production of gold, due to increase in labour costs, exploration costs, power costs, mine rehabilitation costs, etc. In such a scenario, one can only expect gold prices to move upwards over the longer term, Quantum Gold Fund said.
Gold producers know better than others the pulse of the gold market. They have witnessed the huge gold price rise in 1980 which saw gold reaching new highs. They have also borne the impact of the precious yellow metal getting beaten down, on account of intervention by the central banks of various countries, towards the end of the last decade. Therefore, watchout for the hedging-de-hedging activities of gold producers to get a clue in to the future of gold prices.!
__________________________________________________________
Gold vs Dollar: Which will dominate the market?
By Ziad P S
Gold and crude oil have become the hottest commodities in the wake of the global financial crisis brought about by the plunging US economy and collapse of investment banking giants like Lehman Brothers.
Gold and crude oil along with dollar have been dominating the financial news all these days. But which commodity will dominate the global markets?
It is like that that gold will dominate the global markets thanks to the great financial bubbles that the US getting into. Now days the market has shown some volatile signals that when gold is up, the dollar goes down and vice versa. Amid all these, crude oil got modest momentum as it traded higher at major global markets this week.
However because of the volatility in the market, gold dipped below $ 900 an ounce on Tuesday after early buying which propelled the price to a seven-week high; but gold soon lost steam. Now, uncertainties over the US government’s bailout plan may offer support to gold.
Economic analysts express doubts over the strength of dollar as US Treasury Secretary Hank Paulson’s TARP - troubled asset relief program - boosted investment confidence across the world, inspiring some of the biggest one day rises in stocks and equity indices.
They point out that the plan would affect the dollar adversely as it is the biggest currency in the world; it may be difficult for dollar to retain its status as one of the most important currencies in the world now.
|Markets are questioning the potential volume of new US government debt, and the very rapid expansion of the balance sheet at the US central bank, the Federal Reserve. As dollar index hit a low point on 15 July, oil posted its record level of just under $150 a barrel, and gold, which has an especially intimate inverse correlation with the dollar, hit an intermediate peak of $ 977.50 an ounce, close to its March records.
Gold was trading at $895,00 an ounce, down $5,20 an ounce or 0,6 percent from New York’s notional close on Monday, having hit an intraday high of $908,80 an ounce -- its highest level since early August.
However, speculators are taking a bearish view on dollar. That turned gold price from its intermediate low of $ 746.47 an ounce on 11 September, to levels now approaching $900 an ounce..
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