Gold futures hedging Gold futures hedging and Case Analysis January 9, 2008, the Shanghai Futures Exchange launched gold futures and gold for the domestic gold arbitrage hedge related companies have facilitated the beginning of the launch of gold futures generated risk-free arbitrage space, still attracted a gold-related broad participation of enterprises, which to some extent, is the introduction of certain gold futures. First, the price of gold to hedge exposure to fluctuation in the environment 70 years before the 20th century, known for stable value of gold. The 34-year period 1900-1933 the annual average price of the international price of gold (the same below) stable at 20.67 U.S. dollars / ounce, and then in 1934 the U.S. government official price of gold is 35 dollars / ounce, the price has been maintained up to 1967. In the 1968-1971 period, this dollar-denominated gold to stabilize the situation completely collapsed. 1972-1988 International Year of gold from 59 U.S. dollars / ounce soared to 436.79 U.S. dollars / ounce by 1989 through-2001 380.74 U.S. dollars / ounce fell to 272.67 U.S. dollars / ounce. During the next 8 years, gold&#39;s performance has attracted worldwide attention, from 309.66 U.S. dollars / ounce all the way rose nearly 900 U.S. dollars / ounce. The risk of price fluctuations of gold production, triggering the use of gold derivatives to avoid the risk of objective needs, look at the history of previous crisis, gold price volatility of gold futures have been created the conditions. If the gold price fluctuation of gold prices that risk, it also promoted the rapid development of the gold market. If the risk to the mother of financial innovation, then the gold price fluctuation is directly related to birth of the gold futures and derivatives markets. Second, the current gold hedging and gold arbitrage Hedging principle: assume that futures prices were close to long-term F1, F2, spot prices for the short and long term S1, S2, then the operation of different sets of protection and effect of the following: buying needs in the futures market to hedge F1 buying futures, bought stock after the expiration to S2, to F2 sell open futures to hedge spot price risk, so that must be met after the expiration of (F2-S2) - (F1-S1) ≥ 0 sets to ensure their success ; sell in the futures market to hedge F1 needs to sell futures, sell the stock after the expiration to S2, to buy open futures F2, so that to meet the conditions after the expiration of: (F1-S1) - (F2-S2 ) ≥ 0 sets to ensure their success. (A) gold-related companies hedging approach For gold producers, it is expected that the main risks facing the downside risks to the price of gold, that is used to sell hedge, usually, if the futures price above the spot price of gold, then gold mining companies can operate through the futures market in order to achieve stable profitability. If the production cost of a gold mining company at 130 yuan / gram, the next 3 months will have 5 tons of gold output, the current spot gold price of 200 yuan / g, and 3-month gold futures price of 210 yuan / g, then the Mining companies have 10 per excess profits due to the objective of gradually narrowing the current price difference there is the possibility, in order to avoid future price of gold down the risks, the gold mining business could be sold in the futures market, 5,000 contracts, if 3 months After the spread narrowed to 10 yuan, then the successful hedging (excluding transaction costs). For the gold business, they are faced with the risk of rising costs, that is by buying hedge. If a jewelry maker needs to buy 3 months 5 tons of gold for the production of gold jewelry, gold spot market price of 200 yuan / g, 3 months futures price is 205 yuan / g, in order to avoid the rising spot prices risk, the gold jewelry manufacturers can advance hand in the futures market to buy 5000 gold futures contract 3 months, 3 months after the expiration if the current price spread widened after the golden period to 5 yuan, then the hedging success (excluding transaction costs). (B) through the extension of gold and gold futures for delivery of varieties are arbitrage Historically, our existing gold forward species Au (T + D) consistent with the spot gold price volatility, the spread between the two is very small. This means that we can Au (T + D) and gold futures on arbitrage are. Figure 1 shows the gold Au (T + D) compared with the trend of gold 95: Through the Shanghai Gold Futures and Au (T + D) contrast can be found, gold arbitrage between futures and spot opportunities, which in the gold futures market is particularly early. From Basis point of view, the problem more clearly, but on Nov. 21, 2008 individuals can not sell the business to achieve the spot gold, physical gold only for legal persons, regardless of delivery, delivery must have legal qualifications of individuals not directly involved in the This greatly weakened the power of the market arbitrage and no arbitrage trading, gold futures and spot prices often deviate from, there are some of the current inversion phenomenon. From the holding costs theory, if using its own capital, when one-year deposit interest rate of 4.14%, the paragraph, 6 months contract basis due to the difference in theory is about -4.9, so in 806 contracts traded gold the first day, up to 20 odd for a company full of basis risk-free arbitrage, and this arbitrage occurs more than once. 2.25% of the current 1-year deposit rate, the expiration of 6 months contract theory of basis contract expiration month for the -2.98,4 theoretical value of -2.11 of basis, so in October 2008 arbitrage opportunities arise during the many times, but being able to carry only legal persons, individuals can not be achieved, and thus the weakness of market arbitrage. In the for-profits on gold when the convergence of basis points in the 1-2 range, you can see Huang Jinji difference in the (-5, -1) oscillations within a longer time, basis is less than about -1 -5 or Basis are arbitrage opportunities. Table 1 reflects the transaction costs in the same condition, different interest rates brought about by the poor level of theoretical basis. Although the gold futures market is not active, in particular the participation of the main body is limited arbitrage, gold futures and spot market prices often deviate from, especially in the spot trading of gold futures and time is not exactly the same circumstances, this gives Gold mining companies the opportunity to hedge using futures, in a sense, hedging is of arbitrage, the success of the current arbitrage, hedging will be successful. The following companies will present spot gold hedging success stories. Third, business case analysis to hedge At the turn of 2007 and 2008, the international price of gold soared, and in March 17, 2008 to 1033 U.S. dollars / ounce, a record high, after the financial crisis deepens, gold prices retreated from record highs, and October 24, 2008 date below 700 U.S. dollars / ounce, dramatic price fluctuations in gold prices make gold enterprises are facing downside risks, but the timely launch of gold futures to hedge the enterprise and risk-free arbitrage tool. For example to introduce Zijin Mining companies are arbitrage operation of: Gold futures prices listed on the first day up to 230.99 yuan / gram, according to the basic theory of the price difference, 806 contracts should be higher than the spot price of gold is about 5 yuan, the results spread to more than 20 yuan, therefore, Zijin Mining decisively short in the futures market, while Gold buying in the spot market exchange, risk-free arbitrage. In fact, the gold-producing enterprises can not use hedging, but hedging. It is understood that on January 9, Zijin Mining tentatively sold 130 contracts, the next three days, Zijin holds a substantial increase in the number of empty one hand to 1513, and are due June 15 at the same time, same position in the spot market to buy a rigorous risk-free spot arbitrage, the fact that the result of arbitrage Zijin Mining to bring profits. Compared with the hedging, risk-free arbitrage procedure is simple, the risk is relatively small, but high cost. The same operations were carried out Zijin Mining, Shandong Gold, Gold Group and other gold companies recruit. It is reported that if 806 gold futures contracts on January 14 settlement price of 219.28 yuan / gram basis, just four days, three gold short positions held by commercial self-seat the value of contracts reached 548 million yuan, three gold The total commercial space holding gold futures contract 806, one 2498 hand. To facilitate the calculation, we assume that the futures short positions 1513 Zijin Mining hand, the average price of 230 yuan / gram, the cash position long 1.513 tons, the average price of 205 yuan / gram, June 11 open end position, the current closing price of are 195 yuan / gram. Gold Exchange trading fee of 0.12 yuan / g, Win Premium 0.07 yuan / g, the library fee 0.002 yuan / gram, Hong Kong Futures Exchange trading fee per lot in accordance with a unilateral 60 per / gram basis, the opportunity cost of storage is 1.8 yuan / kg / day, 30 days per month, storage period of 158 days. We were compared the effect of two operation modes: program 1, to present no risk of arbitrage, in the January 9 1513 hand set up short positions, while in the spot market, spot gold bought 1.513 tons; Programme II, on the next few months, output of gold to hedge, that is, 9 January 1513 hand set up short positions. A result of the program: This is used by enterprises, in which case, enterprises in the futures business revenues (230-195) × 1513000 = 52955000 yuan, spot on, loss (195-205) × 1513000 =- 15.13 million yuan, profit and loss profit of 37.825 million yuan after balancing the total transaction costs, fees for the open futures opened 1513 × 2 × 60 = 181560 yuan, spot gold acquisition costs 1513000 × (0.12 +0.07 +0.02) +158 × 1513 × 1.8 = 748,027.2 yuan, the total cost 929,587.2 yuan, net profit after deducting costs, 36895412.8 yuan. Profitable arbitrage success. Second, the results of the program: corporate profits in the futures market unchanged at 52.955 million, while in the spot market and the opportunity cost of the program on a loss in the same spot, still 15.13 million yuan, the total excess return after the break-even profit 37.825 million for the element. Costs, because they do not involve cash purchase, the cost spent only futures trading costs, that is 181,560 yuan, after deducting costs, profit 37,643,440 yuan, set to ensure their success. Comparing the two programs, despite the high cost of carry trade, but with the risk, and simple procedures, risk large returns, in the presence of risk-free arbitrage situation, companies are willing to do. The case in two ways because there is market risk-free arbitrage opportunities exist, but in an efficient market, such arbitrage opportunities are rare, so hedging programs often form the second, when hedging Basis hedge effectiveness depends on whether changes may be beneficial, so there will not completely successful hedging possible. IV Revelation From the above analysis shows that not only makes the risk-free arbitrage excess returns to investors, the key is the loss of space due to arbitrage on the price of gold has played a huge role in stability. November 21 individuals to participate in the 2nd gold trading business in the carry trade in the gold market in China has taken an important step, in the near future, we hope individuals will be more flexible varieties of gold trading, diversification, especially to allow individuals to conduct Gold T + D business, which is risk-free arbitrage gold is very meaningful, but also will play for gold futures and better price discovery.
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