John Thornton, ex- Goldman Sachs banker who next year takes over the helm at Barrick Gold, the world’s top gold miner, has suggested that hedging may once again be appropriate. We use to assist mines in hedging. Outsourcing hedging is not really done other than to hand the reins of power to a bank who collects fees.
At Princeton Economic International, we use to take on the outsourcing projects to assist companies in restructuring portfolios globally to create natural hedging strategies and to outright hedge currency and product risk on a PERFORMANCE basis rather than just fees where the house always wins.
The mining companies were sold a bill of goods by the banks that they should always be hedging their product to lock in profits when gold was about $300 and in decline for 19 years. They lost tremendous upside in the 13 year rally. Naturally, like most unprofessional traders, they lifted their hedges to share in the new bull market. Then the high came in place and gold has crashed and burned since 2011.
The majority of the mines will once again hedge going into the low. They will have their short positions in place and end up with losses during the next rally as they did before.