GOLD sales under the Central Bank Gold Agreement (CBGA) were the lowest on record in the year to September 26, according to the Société Générale Quarterly Hedge Book Analysis, which showed gold companies’ de-hedging slowing to two million ounces.
“Official sector sales are thought to have dropped substantially during Q3 (third quarter of 2008), as falling sales were encountered from the CBGA signatories,” the analysis compiled by metal consultancy GFMS said. “Our observations indicate that the fourth year of the agreement… record(s) the lowest ever ‘Agreement Year’ figure, comfortably below the 500 tonne quota,” it said, without giving a number. The World Gold Council (WGC) said CBGA sales in the year came to a provisional 357 tonnes, the the lowest annual total since the first agreement was signed in 1999. "Outside the CBGA signatories, small amounts of buying continued," the WGC said. There has been no further movement from the International Monetary Fund (IMF) on its proposed gold sales of 400 tonnes to generate investment capital. The sales were to be part of the CBGA sales so as not to disrupt the market. "As the proposal requires the passage of legislation by the US Congress, any potential IMF selling is likely to be some time away," the WGC said. The biggest seller was Switzerland, with sales of 37 tonnes in the September quarter. Meanwhile, gold producers, led by Barrick Gold and AngloGold Ashanti, continued de-hedging in the period, taking two million oz off the global hedge book, which now stands at 16.92 million oz. This is the smallest hedge reduction in about two years and the outlook for the last quarter of 2008 is expected to be fairly constrained too. “In the current environment, it is equally pertinent to consider the financial positions of companies which could possibly be looking to reduce their hedge cover,” the analysis said.
“A company with a weak cash position or little spare credit will find it difficult to reduce cover further by any means other than delivery of mine production,” it said. Gold companies have already reduced their forward sale positions by nearly 10 million oz in the first nine months of the year, which is close to what was forecast at the start of the year. Scheduled deliveries for the last part of 2008 amount to 460,000 oz, it said. In the next three years, GFMS calculated gross de-hedging at slightly more than 2.6 million oz a year based on the delivery profile. “Given the retracement of gold prices during the fourth quarter, there is a greater possibility of opportunistic cuts by firmly bullish producers with access to cash, though there is little confirmed activity yet.” Interestingly, there appears to be a pick-up of interest in hedging, but there’s little physical activity on this front, the analysis said. It pointed out there had been an exit of investors from gold stocks and it was generally these investors who wanted exposure to the gold price who were adamantly against hedging. “This should allow company management to make freer decisions as to whether a hedge structure would be for the long-term good of the company and to this end we do hear that the number of enquiries for gold hedging is on the up,” it said. “Furthermore, companies are much less likely to be able to secure a debt finance package that does not include hedging requirements, given increased risk aversion.”
