By Allan Seccombe
Business Day (South Africa)
South Africa’s struggling gold miners may have shot themselves in the foot by ignoring warnings at the tail end of the decade-long bull market to lock in historically high prices for the metal.
Instead, they followed their international peers in unwinding hedge positions, a report released on Thursday shows.
A hedge is an agreement by a producer to sell a commodity at a fixed price in the future. This is a means of protecting against price falls but limits gains when the price rises.
According to the Société Générale Thomson Reuters GFMS Global Hedge Book Analysis report, instead of producers rushing to lock in prices in a falling market, there had instead been a net reduction in global hedging.
“Where prices stand in recent weeks, and if prices were to fall further, it may be the case that many producers have already ‘missed the boat’ on locking in favourable hedging,” it said.