S&P/ASX 200 Index (ASX: XJO) gold shares could be poised to regain their shine.
This year commenced well for the gold miners, as the price of the yellow metal they dig from the ground soared from US$1,800 per ounce in early January to US$2,050 per ounce by 9 March.
That lift saw the Evolution Mining Ltd (ASX: EVN) share price gain 10.3% from 4 January through to 9 March.
Fellow ASX 200 gold share Northern Star Resources Ltd (ASX: NST) gained 16.2% over that same period, while shares in Newcrest Mining Ltd (ASX: NCM) charged 15.2% higher.
Then gold prices retraced all the way to US$1,622 per ounce by 26 September. As you'd expect, this saw all three of the above ASX 200 gold shares sell off sharply.
While bullion has clawed back some of those losses since then, currently fetching US$1,710 (AU$2,664) per ounce, the ASX 200 gold shares remain down year-to-date.
But their outlook appears to be brightening.
What the hedging market is telling us
Many gold miners opt to hedge part of their future gold delivery. That means they lock in a fixed price today for gold they won't sell for several years yet. It's a way to help even out revenues and reduce risk in a world of fluctuating gold prices.
Northern Star hedges 20% of its future production.
And, as The Australian reports, the ASX 200 gold share is getting hedging contracts for gold valued at AU$2,950 for delivery in three years' time. That's well above the current spot price of AU$2,664 per ounce.
At the Melbourne Mining Club, Northern Star Resources' CEO Stuart Tonkin said that rising interest rates have seen hedging contracts deliver some AU$100 per year above the spot price. That's far higher than ASX 200 gold shares have been receiving when rates were at rock bottom.
According to Tonkin:
You typically only pick up $20 or $30 a year in a low interest environment. And now you're seeing a bit of a ski ramp $100 a year forward. That's because the interest rate increases are being calculated into bankers' cost of money holding that gold contract.
If the boffins calculating the value of the forward contracts have it right, gold priced in Aussie dollars could be heading for a new record high.
But that won't see Northern Star hedge any more of its production.
"We still keep the hedge book at 20%," Tonkin said. "It just means we've got some buffer. When the gold price does move it is often a shock, and we just want to make sure that we can manage through any of those type of rapid shocks."
How have these ASX 200 gold shares performed longer-term?
Over the past 12 months, the Northern Star share price is down 5%, the Newcrest Mining share price is down 22%, and the Evolution share price is down 43%.
ASX 200 gold stock shareholders will certainly be hoping that the new hedging contracts are correct in forecasting an upward trend in bullion prices.
