How long does this gold tiger still have to run?

FILE PHOTO: Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London

FILE PHOTO: Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London

Published Oct 7, 2019

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CAPE TOWN - The gold price has been hitting new highs since May - in dollar terms it is trading near five-year highs and in rand terms it is being bought and sold near 10-year highs.

The yellow metal was trading at R735443 per kilogram on Friday, and at $1508.85 per ounce (R22657.60). Over 10 years, it reached a high of more than $1800 per ounce in 2012.

To give a better idea of how it has increased, consider that a year ago it was trading around $1200 per ounce, which represents an increase of around 25percent.

This is a far better return than you would get from most South African equities at present. The metal has also hit record highs in euro and pound terms this year.

Finding reasons for the rising gold price is easy these days - an online search reveals some consensus in the view that increasing global trade tensions, diminishing global macroeconomic conditions and stock market volatility are the principle drivers.

Investors are looking, once again, to gold for its appeal as a “safe haven” store of value in an uncertain global macro-economic environment.

Escalating trade tensions are likely to remain a key factor.

May saw the peak of global trade tensions; equity markets declined sharply that month and the gold price started rising.

The impact of trade tensions, notably between the US and China, has moved beyond just words this year, and has begun to show in economic data, with world trade, global industrial production and PMI Indices all trending appreciably lower this year.

Unless there is an easing of trade tensions between the US and China, and even though advanced economies are still reflecting robust growth on the back mainly of consumption spending, these lower statistics indicate declining growth next year.

Negotiations between China and the US are set to resume for a 13th round this week in Washington, but the outcome is uncertain.

On the JSE, some of our gold mines have benefited from the rising gold price and the volatility in global equity markets.

Sibanye Stillwater for instance, South Africa's biggest gold miner, picked up 7percent on Wednesday after Wall Street lost 2percent following the release of weak US economic data.

Since October 1, the share price has risen from R20.15 to R23.62 on the JSE, an increase of 15percent. It was trading at a lowly R9.86 in the same month last year, with Friday’s price representing a 136percent gain over a year.

The group, which will also benefit from higher PGM prices, reported a R181million loss in the six months to end-June, compared with a R78m profit the year before, but has forecast a much stronger second half.

Harmony Gold Mining Company’s share price in intra-day trade was at R46.73 on Friday, 4.3percent up over the week, and a whopping 85percent higher since May 31.

It reported a 19percent increase in headline earnings per share to 204cents in the year to June, and said it was well placed to benefit from a better gold price.

AngloGold Ashanti’s share price has risen 54percent since May 31 to R310.14 in intra-day trade on Friday, and has increased some 147percent over a year. Headline earnings per share for the six months to June came in at $0.29 versus $0.24 in the same period last year.

Gold Field’s share price at R80.32 in intra-day trade on Friday represented 22.7percent gain since May 31, and over a year the price is up 125.3percent. It reported attributable profit of $71m in the six months to June versus a $367m loss at the same time a year before.

Pan African Resources’ share price of R2.14 in intra-day trade on Friday is up 18.8percent since May 31 and 36.3percent higher over a year. It announced last month that it would resume paying dividends after revenue jumped to $218m in the year to end-June, from $146m the previous year, and taxed profit increased to $38m from $16m.

The gold price and the share prices of locally listed gold mining groups are notoriously volatile and individual investors and fund managers tend to hold them as part of an asset diversification strategy.

Their likely question right now is an age-old question faced by all investors, particularly those invested in precious metals - how long does this tiger still have to run? [email protected]

BUSINESS REPORT 

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