- The gold price is now trading above $1,720 per ounce, making it worth over R1 million a kilogram.
- Economists believe the price of gold may continue to rise amid market uncertainty.
- The higher gold price may mean South African mining companies will pay more tax, and royalties - but only when they restart again following a national lockdown.
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On Wednesday morning, the gold price was trading at around $1,725, or roughly R31,620, per ounce on Tuesday afternoon, which means that one kilogram of gold now costs more than R1.1 million.
The gold price in rand has now rocketed 50% since the start of 2020, noted analyst Johann Biermann:
This is due in part to a rand slump. The rand is now trading at R18.33/$ following interest rate cuts and the loss of South Africa's investment grade rating.
But the gold price has also climbed in recent days amid growing market uncertainty about the impact of Covid-19.
On Tuesday, the International Monetary Fund warned that the world may suffer the worst recession since the 1930s this year. Goldman Sachs expects that the economic hit from the coronavirus crisis will likely be four times worse than the financial crisis in 2008.
Investec group economist Annabel Bishop said the gold price is expected to increase further due to the global implementation of quantitative easing.
Central banks are currently blasting vast amounts of money into the markets as part of massive quantitative easing efforts. This means they are essentially creating money out of thin air, casting doubt on the long-term value of key currencies like the dollar, as well as government bonds.
This creates the ideal circumstances for gold to shine.
“In times of great uncertainty, investors buy gold,” says FNB Wealth and Investments investment research head Chantal Marx.
Marx said as market uncertainty continues, investors will likely turn to gold as a "safe haven".
South Africa is the world’s eighth-largest gold producer, behind countries such as China, Australia, Russia and the United States.
Marx says South African gold mines are set to become more profitable due to the high gold price, as well as the weaker rand. Mining companies set to benefit include AngloGold Ashanti, Harmony Gold, Goldfields, Pan African Resources, DRD Gold and Sibanye-Stillwater.
This higher gold price could result in these companies paying higher tax and royalty payments when they are able to restart production, Marx said.
But the potential positive economic impact of the gold price spike is offset by the 23% decline in the palladium price since it peaked in February, she added. South Africa is the world's second biggest palladium producer.
South Africa is the largest platinum producer, and that metal is also down 22% since February.
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