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:
- Yahoo Finance – Historic Gold Squeeze Shows Signs of Easing as Investors Exit 26-03-20
- Reuters -Three Swiss gold refineries suspend production due to virus threat 23-03-20
- CNBC – Fed announces a slew of new programs to help markets, including open-ended asset purchases 23-03-20
- Mauldin Economics – The Beacons are Lit 23-03-20
- Markets Insider – The entire US yield curve plunged below 1% for the first time ever. 10-03-20
Disclaimer: This material is conveyed as a solicitation for entering into a derivatives transaction. This material has been prepared by a Kilo Futures broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Kilo Futures does not maintain a research department as defined in CFTC Rule 1.71. Kilo Futures, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.