Business Insider Edition

An ounce of gold will now cost you a record R22,000 – as investors around the world run out of options

Helena Wasserman , Business Insider SA
 Aug 05, 2019, 05:34 PM
gold rand
Source: Eddie van der Walt/Bloomberg
  • On Monday, the gold price in rand reached a record level of close to R22,000 an ounce.
  • Nervous global investors are piling into the precious metal amid fears about trade disputes, and as other assets start losing their appeal.
  • JSE-listed miners rocketed in response. 
  • For more stories, go to www.businessinsider.co.za.

On Monday, the gold price reached its strongest level in six years: $1,466/ounce. But measured in rand – which is currently tanking against the dollar - the precious metal is at a record level (around R21,870 an ounce). A kilogram of gold will now cost you R700,000.

Nervous investors are piling into the precious metal as they worry about the damage trade disputes will do to the global economy.

Gold is considered a safe haven investment in times of global uncertainty, and times are definitely uncertain.

The Chinese government has just sent two powerful signals to the US that it will play hardball, by suspending imports of US agricultural products and by lowering its currency below the key 7-to-the-dollar threshold on Monday, a first since the financial crash in 2008. 

This is in retaliation to US president Donald Trump’s threat to levy a 10% tariff on  $300 billion in Chinese imports from September 1. 

That’s not the only trade dispute to worry about. Trump is also threatening tariffs on EU cars and French wine, while the fight between Japan and South Korea is getting bloody. Trade between the countries is slumping, and Japan has now decided to drop South Korea as a preferred trading partner. They are warring after a South Korean court ordered Japanese companies to compensate Koreans who were used as forced labour during the Japanese occupation of Korea (1910 to 1945).

Also, gold doesn’t have much competition: there are few other investment options that look enticing.

Global share markets have tanked for six straight days. And given the low rates on offer on government bonds around the world, and the US central bank’s decision to cut rates last week, the opportunity cost of investing in gold rather than elsewhere has also narrowed, says Seleho Tsatsi, an investment analyst at Anchor Capital.

While the dollar gold price is still not close to the $1,300 levels last seen since the financial crisis a decade ago, the gold price bounce will make a big difference to local producers. 

gold dollar
Gold price in dollar. Source: Kitco

Local miners pay their costs in rand, and a record gold price in the local currency will give them a boost, says Tsatsi.

On Monday, share prices of Gold Fields (+8.8%), Sibanye (+6.3%), Harmony (+6.2%) and AngloGold (+4.8) all rocketed.

But Tsatsi says the South African gold industry still has considerable challenges. Local gold mines are deep and costly to mine, and the gold price (which is notoriously difficult to predict) will not solve these problems. South Africa, once the world's top gold producer, is now only the seventh-biggest miner in the world.

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