What is Legacy Hedge?
A hedge position held by a company that’s held for an extended period of time. Commodity companies, such as gold and oil producers, will often have legacy hedges on its reserves, which give the companies a more stable stream of revenue as the hedge provides price guarantees. Read more for examples and further explanation including related video clips and also comments
Example explains Legacy Hedge
Depending on the movement of market prices over time, the value of the legacy hedge can become extremely valuable or negative for the company. For example, a gold producer hedged 5 million ounces of gold over a 10 year period in 1998 at $200. If the price of gold falls over the 10 year period, the hedge will benefit the gold producer because it is selling its gold above the market price. However, if the price of gold rose to $500, the gold producer would be selling at a significantly lower rate than the market price and would not benefit from the higher prices.
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