In the instances of Ashanti and Cambior, it is clear that cash generated from hedge book transactions was being used to keep the companies afloat. To justify this activity, managers refer to the revenue added or premium to the spot price of gold through hedging. In one sense, producers that hedge are performing a role analogous to that of the lender in a short sale transaction in that the return for doing so is limited to an unexciting spread between short term interest rates. The important difference is that they have no power, in most cases, to reclaim their asset should it become more valuable. In a sharply rising market there will be no boasting of revenue enhancements from hedge books.
Gold mining is risky.
The commodity is scarce, hard to find and challenging to produce. Upside possibilities for return on investment are linked to price volatility. Yet, the average hedge transaction for the last three years has been at spot prices below this figure. It is disappointing that the industry has become almost silent on the advocacy of gold for monetary uses. While initiatives to open and liberalize markets as well as sponsorship of web sites to lower retail jewelry prices are worthwhile, the industry must do whatever it can to reverse gold's marginalization as an alternative to financial assets.