Gold Prices End Higher, After-Hours Action Brings More Volatility

The group expects jewelry demand to wane but to pick up on any correction as seen over the past week in emerging markets. Rising mine production, which increased almost 3% in 2010, according to the survey, as well as the end of producer de-hedging are expected to headwinds for gold in 2011.

De-hedging has been a major support for gold prices as those big producers who locked in gold sales at a certain low price were trying to eliminate the contracts to take advantage of higher gold prices. To do this, they literally had to buy gold, sopping up tons of the metal.

Some hedging remains. Companies are often forced to hedge to secure project financing but they rarely ever try to buy the contracts back. According to GFMS, de-hedging fell by 40% in 2010 leaving less than 100 tons.

AngloGold(AU), the last of the big hedgers, is hedge-free. The South African producer spent $98 million in the third quarter to free itself plus $2.63 billion for remaining futures contracts.

Matthew Piggott, metals analyst at GFMS, says AngloGold's action "represents the final swansong for the producer hedge book which has, over the past decade, provided support for the bull market in gold."

AngloGold follows its peersBarrick Gold(ABX) and Kinross Gold(KGC) who have been actively eliminating their hedges in the past year.

Barrick is now officially hedge-free with $700 million of obligation associated with its remaining floating contracts. The liability has been fixed, however, and does not vary with the gold price. Barrick's market cap is also more than $49 billion, leaving $700 million of obligation looking like chump change.

Kinross still has 448,485 ounces of hedges left at an average price of $632.67 per ounce. The company inherited the positions from its acquisition of Bema Gold in February 2007 and is expected to close out in 2012. Kinross has an active policy about hedging against gold.

Silver prices closed down 28 cents to $29.26 while copper settled 3 cents lower to $4.37.

Gold mining stocks, a risky but potentially lucrative way to buy gold, were lower. Kinross Gold(KGC) was 2.35%lower at $17.43 while NovaGold(NG) was down 0.21% at $14.11. Other gold stocks New Gold(NGD) and Gold Fields(GFI) were trading at $9.05 and $16.98, respectively.

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--Written by Alix Steel in New York.

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