Gold de-hedging and the short term effect on gold’s dollar value
MineWeb carried a great little article today titled Global gold dehedging slows down1. The article talks about how the major gold producers have slowed down their gold dehedging in the third quarter of 2006. While this may not seem like major news considering that it appears that a lot of goldbugs have expected this to occur, it will be interesting to see what the short term effect is on gold’s price in dollars.
When someone hedges gold, it comes out a bit different than other investment hedging. The typical investment hedge will purchase a specific investment but short-sell an equal amount in a competitive product. You might buy 100 shares of XYZ stock, but short sell an equal dollar amount in XYZ’s competitor. If XYZ goes up and the competitor goes down, you limit your risk in that industry. It is a form of risk insurance, and it does seem to work for some investors and investment houses.
Read this entire article at the gold investment site.
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