“Australia’s biggest gold producer, Newcrest (ASX:NCM), has gone into a trading halt while it sets about raising $2 billion to fund a financial overhaul, with the close-out of its revenue-sapping gold hedge book the key element,” reports Barry Fitzgerald in today’s Age. Well, that’s good news.
When gold producers cease hedging, it means they too believe the gold price is going up. Hedging is not, in our modest opinion, evil. It’s prudent. But some gold companies got caught in the position of selling too much of current production at lower prices. When you hedge you lock in a fixed price now for gold to be delivered later. That fixed price gives you certainty, but it also means if gold goes higher, you end up selling your gold below market value.
Clearing up the hedge book means Newcrest can fully profit from the upside in gold. It also means Newcrest thinks that upside is not far away. We want to use the word imminent. But you can’t be sure.
Markets and Money