The red-hot rally in gold prices driven by investor concern about the COVID-19 pandemic and its effects on the global economy has propelled South African gold stocks to record-breaking highs.
A Johannesburg index of producers has surged more than 90 percent this year, even as the broader South African equities benchmark remains in the red for this year.
The sector rose another 3.2 percent to an all-time high on Friday.
Photo: Reuters
“Gold mining stocks are essentially leveraged plays on the gold price,” said Seleho Tsatsi, an analyst at Anchor Capital in Johannesburg. “Relatively small moves in the gold price result in big swings in profitability for the gold miners, because these businesses have big fixed-cost bases.”
Gold has advanced 19 percent this year, driving it within reach of the all-time high price of US$1,921 an ounce reached in September 2011.
Spot gold on Friday fell 0.3 percent to US$1,798 an ounce on the COMEX, up 0.8 percent for the week.
Vast amounts of global stimulus to shield economies from the ravages of COVID-19 have pushed real yields below zero and made bullion more attractive.
The rand price of gold has risen 44 percent, as the currency weakened against the US dollar, improving the profit margins for local producers.
Johannesburg’s five best-performing stocks are all from the sector, with DRDGold Ltd closing in on a fourfold gain for this year. Pan African Resources PLC has climbed 99 percent, Harmony Gold Mining Co 94 percent, Gold Fields Ltd 90 percent and AngloGold Ashanti Ltd 72 percent.
Their breakneck ascent has activated at least one warning that the gains might be overdone. The 14-day relative strength index for the gold stocks gauge is at 73, above the level of 70 that suggests to some technical analysts that the securities are overbought. Even so, there could be further upside.
“Really aggressive central bank action, not just from the US, but central banks around the world following the pandemic this year, is probably the biggest driver of gold prices at the moment,” Tsatsi said. “As long as that continues, which it appears as if it will in the short term, it should be supportive to gold prices.”
Separately, Zimbabwe’s biggest gold mines are being snapped up by Mauritius-based Sotic International Ltd as the price of bullion soars to the highest in more than eight years.
Landela Mining Ventures Ltd, which is controlled by Sotic, bought two of Zimbabwe’s gold mines this year.
The newcomer is targeting six more mines, including four idled state-owned operations, Sotic chief executive officer David Brown said.
That expanding mining portfolio has strategic importance as gold is the biggest source of dollars in a nation facing foreign-currency shortages.
“Gold is a commodity with potential positive impacts,” Brown said in a telephone interview from Johannesburg. “We want to grow the resource base to provide upside for both company and country.”
Additional reporting by staff writer
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