Reuters recently reported that hedging by the mining industry jumped by 103 tonnes (3.3 million ounces) last year, the biggest annual increase since 1999. Hedging is usually done if miners fear prices will fall again.

Sounds ominous.

Except it’s not.

It is true that the amount of gold sold forward rose last year. And it’s the first year we’ve gone from de-hedging to hedging on a net basis in 15 years.

There are two reasons why the headline is misleading.

  1. The bulk of the rise in the global gold hedge came from Fresnillo and Russia’s Polyus Gold. These two companies account for half of all global hedging. In other words, the industry as a whole has not returned to hedging.
  1. More important, the global hedge book is still at an all-time low.

This big-picture perspective shows that a few miners hedging their production does not constitute a change in trend.

What should be hedged is our exposure to systemic risk, whether that risk be inflation, deflation, or any other crisis that seems inevitable. And gold is the #1 instrument for doing exactly that.