Gold Producers Hedge Positions

As a kind of precious metal, gold symbolizes wealth and power from of old. Gold means brilliant dusk in Latin and touchable sun in Ancient Egypt. It has eternal natural quality and also high value by itself, which could not be influenced by the changes of social environment. The amount of gold stock is one of the symbols to determine rich and poor as well as weak and strong for a country, and also reflects the ability to benefit children for a family. Although the gold price rises and falls as a type of physical assets, it still has clear superiority that is incomparable by any other credit assets. With the collapse of the Bretton Woods system, gold has basically realized demonetization in 1970's, and its commodity function has been steadily enhancing. Switzerland abolished gold standard system through referendum in April 2000, and the extent of gold demonetization has been further extended. The next round of gold price falling means the further decline of gold currency function and the further buildup of its commodity function. So the decline of its currency function is the great background of gold price sustaining falling for 30 years in the international market. Since 1980's, the dual role of demand factor and supply factor has resulted in the forming of market structure that the gold demand is relatively weak. Since the gold price hit the all-time high in 1980's, it has never reached that high point though the price rises and falls. Further more, the balance of supply and demand is very weak in the present gold market, which is easily broken, so the gold price is under frequent fluctuations, and it has great up and down. Since 90's, the economy has maintained a good momentum of growth in the United States and the western countries, the pressure of inflation is not large and the demand of speculating in gold is not strong, which are difficult to stimulate the price of gold rise. In addition, the electronics has developed, which caused the function of gold decline in the international settlement, however the gold stock cost is the highest. The birth of Eurodollar changed the stock structure in euro countries in the world, and the European Central Bank clearly declared to decrease the gold stock to about 15%. All of these factors influenced the function and the demand of gold, so the decline of the gold price is inevitable. Although the world political and economic pattern has been readjusted since the "9.11"event happened in the United States, the gold function showed some improvement as a haven of refuge for fund, the demand of gold was pulled, and the gold price was recovered from 2002, the good signs of the bull market for gold were shown. But this is not worth mentioning in respect of the strong rise of the Australian dollar, Eurodollar and Canadian dollar, and the rising of gold price only reflects the great depreciation of US dollar relative to other currencies as the international stock of money from one aspect. Meanwhile, the rise in value against dollar in the gold production countries increased the cost of gold production. Take the South Africa for instance, the increase of the production cost threw nearly 60% of mines into deficit and brought a great social impact. Our gold mines also will face the same problem in the near future. Presently as the international economic factor and geopolitical factor caused the fluctuating price of gold, together with the great pressure of the appreciation of RMB, our gold producers are facing a market full of uncertainties. The frequent price fluctuation brings unpredictable market risk for productive enterprises represented by gold production. So the gold producers stand in need o f hedging to evade gold'sprice risk. The paper take the gold hedging as the breakthrough point, introduces its function and history, analyses factors of production, consumption and price fluctuation, etc. studies the gold hedging tactics, discusses its risk control, and provides new trains of thought and resolution methods for gold producers to evade and defuse price risks, which safeguards the steady development of the enterprise's production and operation.