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Miners' hedging on gold highest for six years in Q2

LONDON (Reuters) - Gold mining companies expanded the global hedge book by a further 21 tonnes in the second quarter to the highest level in six years, an industry report showed on Friday.

Hedging, usually by selling future gold production forward, allows miners to lock in prices and guarantee returns for their output.

Gold prices rose around seven percent in the second quarter from the first three months of the year.

In their quarterly Global Hedge Book Analysis, Societe Generale and GFMS analysts at Thomson Reuters said the global hedge book total stood at 295 tonnes at the end of June, up 9 percent from the previous quarter and compared to 177 tonnes in the same 2015-period.

Australia and Canada-listed companies OZ Minerals and Atlantic Gold accounted for 29 percent of the global increase in forward sales, the report showed.

“Although the third quarter has so far seen sparse announcements of new hedging activity, we believe the uncertainty over higher prices in 2016 will elicit gold producers to join the hedging ‘club’,” the group said.

GFMS analyst Dante Aranda predicted a modest de-hedging activity in the third quarter, but expects companies will be hedging on a net basis for a fourth straight year in 2016.

The mining industry returned to net hedging in 2014 for only the second time in 15 years as prices fell. The outstanding global hedge book has shrunk significantly from 57.2 million ounces (1,779 tonnes) at the end of March 2005.

While hedging can protect producers when prices are falling, it can also stop them capitalizing on a rising market. It became an unfashionable strategy during gold’s 12-year bull run, which took prices to a record $1,920.30 an ounce in 2011.

Reporting by Clara Denina; Editing by William Hardy

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