The costs of a flawed hedging program

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Firms Involved

  • Ashanti Goldfields Company

Year of the event


Description of the case

Ashanti Goldfields was one of the largest African gold producers. It had a successful hedging program in the 1990's, when it used forwards to protect itself against declining gold prices. However, in summer 1997, Ashanti sold forward 10 million ounces of gold, or 6 years of the firm's production and 38% of its reserves. In 1999, the European Central Banks announced that they would limit their sales of gold to maintain their reserves (in particular versus the Pound's), pushing the gold price sharply. Ashanti immediately faced $300m margin calls and made an unrealized loss of $600m[1][2]. This spurred a liquidity crisis, forcing Ashanti to renegotiate its long-term credit, and sending its share price down the abyss.


  • A hedging program must not only consider macroeconomics but also anticipate liquidity issues and cash flow risks, as to not induce financial distress.


  1. The Economist, Gold Hedging - Bugs
  2. GhanaWeb, ASHANTI: A Hedge Too Far