8.10.2009

Gold Still On a Roll, But the Rand Price Languishes

Johannesburg — THE gold price rallied to a new historic high for the second day running, briefly touching 1048,43/oz in London yesterday before easing to 1042,80.

The metal traded stronger on a 13-month high in emerging market stocks and rising commodity prices as investors sought assets with higher yields than the dollar-based investments they had favoured as a safe haven during the financial crisis.

A weaker dollar also faces longer-term headwinds on fear of a stimulus-induced inflation binge, which is good for the gold price. But Alphen Asset Management said that while the gold price had reached new highs, the rand price of gold was languishing below the levels of March due to an excessively strong rand.

London-based TheBullionDesk.com analyst James Moore said that while a higher gold price was reason to be more bullish on SA's gold-mining shares, the local industry had inherent problems.

These included a poor safety record, the need for deeper, more expensive shafts, and production peaking, which made mining groups in other countries more attractive investments. Taking shine Asset Management director Jeremy Gardiner said the equity recovery was firmly on track even though there were "signs of exhaustion".

The JSE, up 3% last month, was the worst-performing of emerging markets for the month, with Russia's the strongest, gaining 15%. The JSE all share index rose 1,1% to 25299 yesterday.

"Several emerging markets, particularly in Asia, are growing strongly and the much predicted shift from the low-yielding west into the higher-growing rest has indeed been evident by the stock market returns from those regions," said Gardiner.

South African equities, which were up about 18% year to date and had returned 19,5% a year for the past five years, "cannot continue at the same speed".

SA would take longer than most emerging markets to recover economically as Europe was its major trading partner, he said. Short-term weakness in equity markets would be offset by "a wall of money waiting to enter the market", which had been invested in cash-type investments during the financial crisis, said Gardiner.

Alphen Asset Management said that while gold shares were great trading stocks, they were poor buy-and-hold investments because the JSE gold index had not shown any gains since early 2002, while the rest of the market had been on a bull run since then. Alphen said gold bugs, with their "unfailing belief in gold as a store of wealth, seemed to be "crawling out of the woodwork again". (All AFRICA)

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