Nicola Mawson
As global markets grapple with rising geopolitical tensions and fluctuating economic signals, gold has emerged as a beacon of stability, reaching unprecedented price levels on the back of rising demand.
Bank of America predicts that the yellow metal could soar to $3 000 (R52 750) an ounce by next year, following a remarkable 40% increase over the past year, as it traded at just above $2 700 yesterday.
However, while many gold miners on the JSE celebrated share price gains yesterday, the situation appears more complicated for South Africa’s miners.
Once leaders in global gold output, South African mines have seen production dwindle dramatically over the decades—from 70% of global output in the 1980s to a mere 5% today.
This decline raises crucial questions about how much benefit local producers can reap from gold’s surging prices.
Old Mutual chief investment strategist Izak Odendaal remarked that gold’s ascent remained perplexing, but attributed the rally to a mix of factors, including aggressive central bank buying, market jitters stemming from geopolitical unrest, and declining US interest rates.
“Gold’s rally is a bit of a mystery to many of us. Let’s put it down to a combination of central bank buying, nerves around geopolitics, and falling US interest rates,” Odendaal said.
Yet, Odendaal emphasised that when it comes to South Africa, the diminishing production levels meant that if gold prices may reach other unprecedented levels it may not translate into significant economic impact.
“South Africa’s problem is that we produce much, much less gold than we used to. If gold hits $3 000 it is not going to have a major impact on the economy,” he said.
According to analysts, the price of the yellow metal is bolstered by increased demand for safe-haven assets.
Investors are closely watching developments in the Middle East on the back of rising tensions while the uncertainty surrounding the upcoming US presidential elections is also further increasing the appeal of safe-haven assets.
Additionally, expectations of looser monetary policies from major central banks also support gold prices.
Stephan Erasmus, an investment analyst at Anchor Capital, noted that factors such as geopolitical tensions, central bank demand, and macroeconomic signals will significantly influence gold’s trajectory.
“Gold continues to be valued for its stability during economic volatility and is expected to remain a key asset for central banks and investors. Real yields, central bank demand, and global economic conditions will influence gold’s performance over the coming months,” Erasmus said.
Echoing this sentiment, Old Mutual Group chief economist Johann Els underscored the role of monetary policy in gold’s recent momentum.
As the US Federal Reserve and other global entities adopt looser monetary strategies, the allure of gold grows—especially amidst escalating hostilities in the Middle East.
Els noted, however, that gold’s run may be somewhat short-lived hence it should serve as only a modest element of a diversified investment portfolio for investors.
“So, growth or risk assets will do far better than gold over the medium- to longer-term, especially in an environment where South African economic growth is busy picking up, where foreign investor interest in South Africa is picking up – the so called risk on trade,” Els said.
“Thus, gold can be part of a portfolio, a balanced portfolio, but in my opinion, relatively small portion of a balanced portfolio.”
Investec chief economist, Annabel Bishop observed that the increasing valuations of safe-haven investments like gold reflect broader market anxieties.
Indeed, the promise of significant movement in US funding needs and their implications for the Treasury market, as stated by Bank of America, position gold as a preferred asset during times of fiscal anxiety.
BUSINESS REPORT
