Gold Derivatives: Gold Derivatives: - World Gold Council

price profile. If the event has a price impact this should show at the time of
the announcement.
The event study methodology depends on certain assumptions. The event the
study is examining is unlikely to be the only event which hits the market that
day. So the return over the event day may owe much to extraneous factors. But
by taking a sufficiently large number of events, the assumption is that this noise
will cancel out. The set of events may be of very different magnitudes. With
hedging announcements for example, one is averaging across totally unexpected
changes in hedging policy by large producers with relatively insignificant changes
by much smaller producers. So by averaging one gets an impact from an ‘average’
hedging announcement.
But perhaps the key assumption in carrying out an event study is that one can
identify with some precision when the event - that is the news about the change
in hedging policy - actually hits the market. To the extent that the announcement
merely ratifies what is already well known, the price impact will not be observed
in the announcement window.
4.2.2 The event study
To identify the events in our sample we trawled for stories in the period 1992 to
2000 in which companies made announcements about their hedging policies.
The sources were the Financial Times of London and Reuters Business Briefing.
We identified a total of twenty events as follows:
18/02/00: Randfontein closes out 55% of its hedging positions
11/02/00: Homestake Mining announces it has not made changes to its gold
hedging policy
07/02/00: AngloGold announces that it had been reducing its hedge commitments
for the past few months and said it would continue to do so
07/02/00: Barrick announces that it remains committed to its hedge programme
04/02/00: Placer Dome announces suspension of gold hedging activities in belief
that price is likely to rise
31/01/00: Agnico Eagle Mines Ltd. Confirms its policy of not selling any of its
future gold production forward
12/11/99: Coeur d'Alene announces that it continues to engage in gold hedging
transactions
29/10/99: Cambior Inc. reports that its gold hedging programme has been
reduced
21/05/99: Newmont Mining announces that it is not about to start hedging its
gold production
Gold Derivatives: The market impact 69