LONDON -(Dow Jones)- More than a third of the remaining global gold hedge book disappeared in 2007 and is now at less than 27 million ounces with further dehedging expected in 2008, VM Group said Tuesday.
Total dehedging in 2007 reached 13.5 million ounces, the largest such reduction since 2004, the group said in a report published for the Fortis Hedging and Financial Gold Report.
Miners continued their de-hedging program during the fourth quarter of 2007, drawing down hedges by another 2.3 million troy ounces to 26.8 million ounces. The fourth-quarter decline was the 23rd consecutive quarterly reduction. The declines are particularly impressive given the shrunken size of the book, VM Group said.
"If 2007's rate continues, half of the global book could disappear," the report said. "Although in the current antihedging climate this cannot be ruled out, we expect dehedging in 2008 to slow to between 6 million ounces and 8 million ounces."
The decline in hedging for the fourth quarter was broadly based. Of the 113 gold mining companies included in this survey, 47 had hedging programs at the beginning of the quarter, and 39 - or 83% - reduced their commitments. Of the other eight, six made no change in their positions, while only two made tiny increases, VM group said.
Newcrest Mining Ltd. (NCM.AU) was the leading dehedger for the second consecutive quarter. It cut its position by 735,355 ounces, and announced it had done another 299,275 ounces in the first quarter of 2008.
AngloGold Ashanti (AU), Barrick Gold Corp. (ABX), Red Back Mining Inc. (RBI.T) , Highlands Pacific Ltd. (HIG.AU), Austindo Resources Corp. (ARX.AU) and Lafayette Mining Ltd. (LAF.AU) all reduced their positions by more than 100,000 ounces during the quarter.
"With the gold price at record highs, mining companies continue to close out their hedge positions to take advantage of further gains," said Jessica Cross, CEO of the VM Group. "There is little sign of this stopping in the near term."
The mark-to-market valuation continues to deteriorate and despite the reduction in hedging VM Group said it estimates the MTM valuation of the global hedge book worsened from a negative $10.7 billion to a negative $11.3 billion, as the gold price soared $93/oz over the quarter to $836/oz at year-end.
Along with continued gold dehedging, gold exchange-traded funds continue to gain in popularity, VM Group said. The numerous ETFs added another 80 tons of gold in Q4 07, equivalent to 2.6 million ounces, taking their collective holdings to 891 tons.
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