Business Maverick


Safe haven status drives gold towards record highs 

Safe haven status drives gold towards record highs 
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The turbulence in the US banking sector and renewed concerns about a recession in the world’s largest economy have set a new fire under the price of gold, which on Thursday was within spitting distance of its record highs in dollars and had scaled a new peak in rand. It's manna from heaven for South African gold producers.

Gold breached $2,000 an ounce on Tuesday and was fetching around $2,030 an ounce, nearing its record of over $2,075 reached in August 2020, according to World Gold Council data. Meanwhile, the rand/gold price scaled a new high of R1,168,270 per kg, a surge that will flow straight to the bottom line of South African producers of the precious metal. 

“Disappointing economic data out of the US pushed gold prices above $2,000 per ounce on Tuesday. Job openings dropped below 10 million for the first time in over two years — even though they remain well above pre-pandemic levels. Durable goods orders, as well as capital goods orders, came in weaker than expected, further fuelling fears of a US recession,” Carsten Menke, the head of Next Generation Research at Swiss wealth manager Julius Baer, said in a commentary on the data.  

“The disappointing data was very well received in the gold market, where the narrative of a recession has been building since the US banking turmoil a couple of weeks ago,” Menke said. 

Gold thrives when risk aversion is high, enhancing its status as a safe haven investment. There are also plenty of geopolitical tensions on the boil at the moment with Russia’s war in Ukraine still raging and Vladimir Putin saying he plans to station tactical nuclear weapons in Belarus. On top of global economic jitters, it’s all a red rag for gold bulls.

Read in Daily Maverick: Ukraine urges UN meeting on Putin’s atomic weapons plan for Belarus

That in turn is good news for South Africa’s undervalued gold producers. Gold Fields’ share price hit a record high on Thursday of over R265 a share, driven in part by the fact that in Australian dollar terms the gold price vaulted $AU3,000 for the first time. Gold Fields gets 45% of its production from Australia, and its South Deep operation in South Africa is coining it with the rand price. 

Harmony Gold’s share price was up about 35% in the year to date, its highest levels in 2023. AnglodGold’s share price was around 40% higher since the start of the year. 

But even after this increase, on a technical basis, South African-listed gold companies are pretty cheap. AngloGold Ashanti and Gold Fields are trading at about 14 times annual revenue. This compares to the 25 and 18 forward price-to-earnings ratio of the world’s two largest gold companies Kinross and Newmont. All the big global gold companies have modest debt and are paying solid dividends.  

What’s good for gold is not necessarily good for other commodities — far from it. PGM prices are broadly flat to lower in the year to date, according to Johnson Matthey data and fears of a US recession bode ill for demand for industrial metals. Sibanye-Stillwater’s share price is down about 20% so far in 2023, a reflection of the fact that it produces both gold and PGMs. 

It’s a double-edged sword for the rand, which weakened back above 18/dlr on Wednesday and was around 18.24/dlr Thursday afternoon. The gold price should be supportive, but South Africa is far from being the world’s top gold producer these days. Risk aversion is never good for the rand, but if the US is falling into recession, its rate hikes may slow or stop, which would offer the currency support. 

Meanwhile, the Witwatersrand gold fields are still churning cash. DM/BM


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  • Confucious Says says:

    Generally, the ZAR:USD is inversely correlated to the price of gold. Hopefully SA can capture some upside for a change.

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