Gold could be on course to reclaim its safe-haven status as mining shares surged on the JSE yesterday, with all of SA’s listed miners benefiting.
The stalemate following elections in Greece and the expectation that the US Federal Reserve will embark on a third round of stimulus measures, resulting in a weaker dollar, could send investors looking to store their wealth in gold.
According to leading mining analysts, this boded well for gold mining shares.
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Despite bullion’s price having dropped against the dollar this month, gold firmed up slightly when quoted in rand terms, supporting the rise in mining shares.
By the close of trade yesterday, shares in AngloGold were up 3,7% to R301,90, Harmony was up 6,4% to R82,04 and Gold Fields had gained 5,1% to R110,06.
Compared to the platinum index, which had dropped by 9,4% in the last 30 days, the gold mining index had risen by 15,27%.
"The rise in gold shares could be the result of portfolio realignment, in that the large institutional funds are possibly going in search of investments that yield higher dividends," Percy Takunda, precious metals analyst at Imara SP Reid, said yesterday.
Concerns over Greece and whether it will remain in the 17-member euro zone after its elections next month could work in favour of a firmer bullion price over the coming weeks.
Beyond European uncertainty, there has also been growing speculation that the US Federal Reserve could introduce a third round of quantitative easing to further stimulate the country’s recovery, which would weaken the dollar.
The road ahead was, however, not paved in gold, as miners battled to remain profitable.
David Davis, mining analyst at Standard Bank , said high mining inflation has led to an increase in operating costs for the industry.
"The rise in the gold price must outperform rising operating costs in order for the mining sector to realise greater margins," Mr Davis said.
Based on a 30 -day average movement in prices, AngloGold Ashanti had risen by 18,66%, Gold Fields was up 13,46% and Harmony Gold went up by 12,05%.
For the quarter ended in March, SA’s big miners reported low production figures that, along with a weakened gold price, weighed on their earnings.
Despite this, AngloGold Ashanti produced 981000 oz of gold, missing its initial production target by about 6% - but the company maintained its annual production target of between 4,3-million ounces and 4,4-million ounces.
Rival Gold Fields produced 827000oz in the March quarter, and expects to produce 3,5-million ounces for the year, a forecast revised downwards from its earlier estimate of between 3,5-million and 3,7-million ounces.
Harmony, which produces 90% of its gold in SA, reported an 18% drop in production to 281000 oz for the March quarter. The company has since said that it expected to produce 70000oz less than its previously set annual target of 1,35-million ounces.