Focus on growing your business, not metal prices.
If your company has gold, silver, PGM or copper as part of inventory, you know the impact metal prices can have on your business. Your profit margins can be dramatically impacted by price movements in these sometimes volatile metals. A well tailored metal hedging program gives you the confidence of fixing a key component of your production costs. For businesses with seasonality, it can also provide optionality. Carefully crafted, it allows you to participate in rising markets during peak seasons while protecting against possible price drops. Implemented properly, operational staff can manage the hedge program as your inventory levels fluctuate along with your business volumes.
Most importantly, a good metal hedging program is easy for all stakeholders to understand.
A well designed hedging program aims to help:
- Protect your business from fluctuating metal prices.
- Make your production costs and inventory values more predictable.
- Maximize the benefit of rolling your hedges to further dated contracts; for many precious metal companies, this is often a meaningful offset to your financing costs.
- Quantify your true net funding costs for these metals so you can select the right financing tool for your business (loans, metal leases, refiner advances, etc.).
- Fully incorporate the impact of the unique aspects of your business like customer price locks, seasonality, or rapid changes in customer demand.
Common examples of tailored metal hedging include:
- Coin dealers dynamically balancing their hedge position to match unsold physical gold and silver inventory. Hedge size is adjusted as additional product bought from suppliers, or sold to customers.
- Jewelry wholesalers using options to limit the impact of possible gold price decline during peak season, while enjoying the ability to sell at higher prices if the market rises.
- Scrap collectors and aggregators hedging the metal price of acquired PGM scrap until the refining outturn can be sold.
- Industrial manufacturers opportunistically locking in the price of metal feedstock when the price dips below budgeted costs.
Metal Hedging News:
- WSJ – Is Inflation Dead? Some Investors Bet It Could Roar Back 02-06-20
- Reuters – Canada’s CIBC lost $64 million in a day on paper in gold market turmoil 30-05-20
- LBMA – Alchemist 30-05-20
- BNN – New York gold traders are drowning in a glut they helped create 30-05-20
- FX Empire – Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? 27-05-20
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