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Boom for gold mines, but SA could miss out
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Bheki Mpofu
Business Day
Thursday, May 13, 2010
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Gold prices hit a new peak above $1245/oz yesterday as investors sought a safe haven from volatile equity and currency markets with concern spreading about contagion from the Greek debt crisis.
While the rally was good news for the global gold mining industry, SA could miss out as a strong rand and rising costs offset the price rise.
The rally comes amid lingering concern that SA’s challenges — such as rand strength, power failures, higher mining costs, declining grades and pay demands — may put a damper on local prospects.
Analysts expect SA’s gold output to slip further this year, to about 200 tons, which should see the country drop to fourth place among gold producers, behind China, the US and Australia. SA fell last year from second spot to third, behind China and Australia.
BoE resources analyst Mark Rule said: “There is despondency about the performance of local gold companies.” Recent quarters were “disappointing mainly because of factors such as labour problems, declining grades mined and deepening levels of some of the mines”.
“Another curve ball thrown at the companies has been the safety stoppages by mining inspectors. South African companies may not benefit fully from the higher gold prices.”
Analyst James Moore at specialist metals website TheBullionDesk.com said heightened concerns about the risk of contagion from Greece’s debt woes attracted fresh inflows of cash into gold, seen widely as a safe bet in economic uncertainty.
Markets were buoyed on Monday after the European Union (EU) and the International Monetary Fund (IMF) backed a €750bn rescue plan for crisis-hit euro countries aimed at limiting fallout from Greece, but many investors were unconvinced.
“The actions by the EU and IMF and forming of a new UK government may go some way to dampen volatility,” said Moore.
“However, the sheer scale of fiscal deficits facing numerous countries is likely to prompt further diversification … and should ultimately propel gold to fresh highs.”
Traders feared the Greek crisis could spread to other peripheral euro-zone economies, notably Portugal, Ireland, Italy and Spain.
Commerzbank analyst Carsten Fritsch said: “Persisting worries that the debt crisis in the euro zone could spill over to other countries, despite the EU’s €750bn aid package, and thus contribute to a destabilisation of the financial system are driving investors to the yellow metal.
“Gold should remain in demand as a safe haven in times of crisis, and the flight to safety should go on.”
Gold hit record highs late last year on inflationary fears and moves by central banks to diversify assets away from the dollar. Gold, the two main drivers of which are jewellery and investment buying, is also regarded as a good store of value in times of higher inflation.
Despite gold’s record-breaking run, London-based consultancy Capital Economics predicts it will lose its sparkle later this year. “Unless the government of a major economy actually defaults, or the dollar collapses, we continue to expect gold prices to be back below $1000 by the end of the year,” said Capital Economics analyst Julian Jessop.
“The EU rescue package should be enough to avoid an imminent financial meltdown in the euro zone,” Jessop said. “But the required fiscal tightening will undermine the recovery … which should keep the euro weak and dollar strong.”
A stronger US unit made dollar-priced gold more expensive for buyers using weaker currencies, which tended to weigh on demand and prices. With Sapa-AFP
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