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THE gold price tumbled as much as 4 percent on Wednesday, touching a low last seen in August 2010 and potentially endangering the future of some of South Africa’s top gold mining houses if the fall continues. The top three JSE-listed gold shares — AngloGold Ashanti, Harmony Gold and Gold Fields — have shed a combined R100-billion in value so far this year, underlining concerns over the sector’s future.
Predictions that gold could fall under $1000/oz as expansionary monetary policies are reined in, especially in the US, are putting further pressure on gold miners.
The companies are also facing surging labour unrest, and wage demands ranging from 60 percent increases to a whopping 100 percent.
The JSE gold index is down 23 percent this month for a 48 percent loss so far this year. Harmony and AngloGold shares have lost 54 percent and 49 percent, respectively, since the start of the year, while Gold Fields has given up 47 percent since Sibanye Gold was unbundled on February 11.
“The gold industry is under attack from all sides,” said independent analyst Ian Cruickshanks. “With the price in bear market territory, it is very difficult to make an investment case for the sector and its future in South Africa is limited.”
Earlier this week, the Association of Mineworkers and Construction Union tabled a 100 percent wage demand for all unskilled and semiskilled employees in the gold industry, raising fears of a strike and attendant consequences for production if its demands were not met. The National Union of Mineworkers tabled a 60 percent wage demand last month.
Spot gold fell to lows of $1236.25/oz on Wednesday, which analysts deemed unsustainable for the bulk of South Africa’s gold mines.
“The gold spot could go as low as $1000/oz, further impacting gold miners negatively from the cost point of view. The $1300/oz is, on average, the break-even point for gold companies to produce gold profitably,” said Rezco Asset Management investment director Rob Spanjaard.
Meanwhile, South Africa’s central bank should keep interest rates on hold to cushion the economies of dependent neighbouring states that have been bruised by a sharp weakening of the rand, Lesotho’s acting central bank governor said.
The fortunes of the tiny mountain kingdom and its roughly 2 million people are closely linked to South Africa under a currency peg that also covers Swaziland and Namibia.
“It would be very unwise for them to start increasing rates when the situation is like this,” Masilo Makhetha told Reuters in an interview in the Lesotho capital late on Wednesday.
The rand has fallen nearly 20 percent against the dollar this year, igniting price pressures in South Africa and by extension, Lesotho, which relies on its neighbour for the bulk of its imports. Annual inflation slowed to 5.6 percent in May, within the South African Reserve Bank’s 3-6 percent target.
The central bank has kept rates at four-decade lows since a 50 basis point cut last July, as growth in Africa’s largest economy remains hesitant at around 2.5 percent, about half the rate of before a 2009 recession.
The comments by Makhetha, who has no vote on South African monetary policy, were broadly in line with the stance of Reserve Bank governor Gill Marcus. — business.iafrica.com/- Reuters.
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