Gold miners eschew hedging to lap up sky-high prices
Prices might have never been higher, but gold miners show few signs of rushing to lock in any of the recent gains.
Gold prices might have never been higher, but miners of the precious metal show few signs of rushing to lock in any of the recent gains.
Hedging is a strategy used by producers of commodities from natural gas to aluminum to protect themselves from falling prices in markets that can swing wildly.
Yet it became hugely unpopular across the gold-mining industry after producers lost out on billions of dollars in potential revenue during a bull run in the 2000s because they had committed much of their output to hedges at significantly lower prices, frustrating investors.
Fanned by economic and geopolitical concerns, gold recently surpassed $3,500 a troy ounce for the first time—a record level in both nominal and real terms. Importantly for miners, gold has also notched all-time highs in the local currencies of places such as Australia and Canada, where many top producers run their operations.
Gold-mining margins are now at a 50-year high, according to Citi analysts. While companies are enjoying the windfall, there is little evidence of it swaying the industry’s feelings about hedging.
Today, gold producers that sell future production at a fixed price typically only do so when required to support financing for new mines. Hedging, intended to be a tool to manage risk, guarantees a price for at least a portion of their output.
Most resist it. Companies say shareholders invest in their stocks as a way to bet on the price of gold, and that hedging damps this.
Net producer hedging totaled just 5 metric tons in the first quarter of 2025 and was generally linked to debt financing, according to data from the World Gold Council, an industry group. That addition followed big cuts to the combined industry hedge book last year, including a 19-ton reduction during the fourth quarter of 2024 alone, as miners sought to exit hedges set at below-market prices.
Any signs of a change in appetite for hedging are closely watched because of the impact it can have on market supply. In the 1990s, hedges were a significant source of global gold sales, damping prices.
At roughly 180 tons, total hedges today remain negligible compared with that time. At the start of the 2000s, the gold-mining industry reported hedges around 3,000 tons.
In Australia—one of the world’s top sources of gold, behind only China and Russia—companies are flush with cash and executives are bullish, Macquarie analysts said in a recent research note. Most unhedged producers are happily so, and those with hedges in place have been cutting back by adding fewer new ones as they deliver on existing contracts, said the analysts.
“It’s a fantastic time for the gold price at the moment, and we and our shareholders will enjoy the benefits of that," said Regis Resources Chief Executive Jim Beyer. About 18 months ago, Regis closed hedges that it said had been weighing heavily on its cash flow.
Northern Star Resources is one of the few gold producers of its size that continues to hedge—and even it hasn’t been adding new ones in recent months.
“I get asked: why do you do it?" said Chief Executive Stuart Tonkin of hedging. He said Northern Star views the practice as a prudent way to ensure returns from new investments. “Our policy was never set to guess a gold price."
Analysts say the real test of whether the industry will ever regain an appetite for hedging will likely happen when gold prices fall and companies worry about keeping their mines profitable.
There are some signs that the price of gold could now be near—or past—its peak, some analysts say. Citi analysts said they expect gold prices to remain high in 2025, but then fall next year and the year after as concerns about global growth subside.
At the same time, many miners are investing in mine expansions or acquisitions to future-proof their operations.
There is little evidence they will enthusiastically add new hedges to protect against a sudden downturn. The World Gold Council, in a recent report, said it expects hedging activity will remain limited as investors seek full exposure to elevated spot prices.
“This is a great time to be a fully unhedged gold producer in Australia," Westgold Resources CEO Wayne Bramwell said during a recent investor call. Westgold closed out its own hedge book in 2023.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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