Gold producers planning to cash in on the rising price for their precious metal will further reduce forward selling commitments in 2005, but the pace will slow, analysts said. Miners cut back their hedge books - the amount of unmined gold they sell forward - by a potentially record level in 2004 that may have added some 424 tonnes of physical demand to the market.
Over the past four years, major gold companies have massively reduced their hedge books - which commit them to sell at a fixed price that may be lower than the market - as bullion prices rose to their highest in more than 16 years.
Gold is currently trading at 420.90 per ounce more than 60 percent up from 2001, when prices were languishing at 20-year lows.
Unhedged miners, fully placed to profit from soaring gold prices, saw their share prices rise significantly as their earnings were not capped, while hedgers were punished as investors sold their stock.
World number two gold producer, South Africa-based Anglogold Ashanti Ltd, recently said it slashed 2.2 million ounces (68 tonnes) from its hedging programme in the fourth quarter of 2004.
"Given the aggressive reduction we saw by Anglogold in Q4 and the fact the delivery schedule for 2005 is significantly lower, I think we will see a reasonable slowdown in dehedging," said Kamal Naqvi, precious metals analyst at Barclays Capital.
"We will still see significant amounts of dehedging, but certainly well off the pace we saw last year."
Alan Williamson, metals analyst with HSBC Bank, said he was factoring in a slight fall in dehedging to 300 tonnes in 2005.
Scheduled deliveries of gold accounted for 70 percent of total de-hedging in 2004, while buy-backs accounted for the rest, according to independent consultants GFMS Ltd.
Research consultants Virtual Metals estimated the global hedge book at the end of the third quarter of 2004 stood at 62.8 million ounces (1,953T) - 48 million ounces lower than at its peak in the second quarter of 2001.
GFMS estimated the global hedgebook at end 2004 was roughly the equivalent of nine months of annual production.
Data for the last quarter of 2004 will be released later this month.
"We're waiting to hear whether Barrick did a lot but the rumour in the market is that they didn't do as much as they had been doing previously," said Jessica Cross, chief executive at Virtual Metals.
Barrick, once a staunch hedger, shocked the market in November 2003 when it declared it would no longer sell gold on forward markets and reduce its hedge book to zero over time.
Other than a small amount of project-financing related hedging, analysts did not expect a return to hedging any time soon by any of the majors. "Producers are very heavily committed to not hedging," said Paul Merrick, vice president of commodities at RBC Capital Markets.
"It would take a sea-change in the market to reverse or modify that position."