Global gold hedging declines by 4.8 Moz in Q1 08 to 22.0 Moz

Large scale dehedging from AngloGold Ashanti, Barrick, Buenaventura and Newcrest saw global gold hedging fall by a huge 4.8 Moz in Q1 08, taking the delta-adjusted total to just 22.0 Moz. In percentage terms this was the largest decline on record, at 18%. On the committed ounces measure the decline was slightly larger, although still 4.8 Moz, taking that measure of hedging to 23.0 Moz.

The four companies mentioned above were responsible for 4.0 Moz of reductions. AngloGold Ashanti led the way, with a reduction of 1.2 Moz (in committed ounces), followed by Barrick who converted 1.1 Moz of fixed-rate contracts into floating-rate contracts. Buenaventura closed out their entire hedge book of 0.9vMoz, whilst Newcrest removed 0.7 Moz from their hedge position and now only have 0.2 Moz of commitments left (although they have 2.1 Moz of puts). Another 32 companies made reductions in their hedge books.

Only two companies added to their hedge commitments and this was just 7,137 oz. This is the lowest total of new hedging since our records began, in Q2 02.

Looking ahead for the rest of 2008, AngloGold Ashanti's announcement that it is to close another 3.8 Moz of hedging during the year means we have increased our full year 2008 forecast to 10-12 Moz. This would mean the global book would be just 15-17 Moz at the end of the year. As such, the support the market has had from producer buybacks is coming to a close; volumes are likely to decline significantly in 2009 and beyond.

The mark-to-market valuation (MTM) of the global book improved slightly in Q1 08, we estimate it was a negative $11.2bn, $0.1bn better than at the end of Q4 07. That the improvement was so small despite the large reduction in hedging is because of the soaring gold price, which rose $97/oz over the quarter.

Exchange-traded funds in April suffered their worst month on record for outflows. The StreetTRACKs product fell by 62.5 tonnes, although it has since staged a slight recovery.

Global gold hedging in Q1 08 fell 4.8 Moz (148.8 tonnes) to 22.0 Moz; largest percentage decline on record; end of dehedging era in sight

More positive for the gold market is that official sector sales have slowed, as Central Bank Gold Agreement signatories struggle to reach their 500 tonne maximum sales limit. Unless a central bank such as Spain or Portugal resumes sales it is likely that collectively they will undershoot the limit by more than 100 tonnes.

Matthew Turner, VM Group's author of the report, said: "Q1 was another huge quarter for dehedging and AngloGold Ashanti's announcement means the rest of the year will continue to see relatively large volumes. After that the rate of dehedging is likely to slow considerably as there will be little of the global hedge book left to close out".

The Fortis Hedging and Financial Gold Report, sponsored by Fortis Bank, is issued quarterly and is available free of charge from today. It covers the gold hedging positions of 110 mining companies worldwide, accounting for 67% of global production and an estimated more than 95% of all global gold hedging. The report tracks 12 gold ETFs and all publicly available central bank data. We are able to supply some of the data in Excel form upon request.

If you have not received a copy of this report or should you require further details or commentary, please contact:

Matthew Turner

VM Group

+44 20 7487 3600

matthew@virtualmetals.co.uk

Ted Reeve

Haliburton Mineral Services

+1 416 447 7524