Nicola Mawson
South African gold miners are benefiting as gold continues its historic run on the increasing chance of an interest rate cut in the US, with the spot price hitting $2 529 (R45 177) an ounce yesterday – pushing the value of a gold bar to $1 million.
AngloGold Ashanti, Harmony Gold, Sibanye-Stillwater and Gold Fields have all benefited from the price surge, with their share price notching gains. AngloGold Ashanti ended at R573.54 per share yesterday, Harmony Gold closed the day R200.48 per share, with Sibanye-Stillwater at R19.92, and Gold Fields R310.06 per share. Gold ended the day $2 526 per ounce.
Old Mutual Group chief economist, Johann Els, told Business Report markets were increasingly pricing in a decrease in the interest rate in the US, which is pushing investments to riskier and potentially more rewarding assets such as gold. He said he anticipated cumulative cuts of 125 basis points over the rest of the year, starting with the Federal Reserve’s September meeting. “It’s part of the risk-on trade.”
Els also said anticipated growth in the US was also pushing investors into assets such as gold, with emerging markets also expected to benefit. He expects US economic growth to drop from 2.1% in the first quarter to 1% in the second three months of the year. The second estimate of the US GDP growth is set to be released on August 29.
Bianca Botes, director at Citadel Global, added that the “steady rise in gold – up over 20% this year – is being driven by expectations that the Fed will begin cutting interest rates in September”.
This, she explained, bolstered gold’s appeal as a safe-haven asset in a low-interest-rate environment.
However, South Africa is largely losing out on this gold rush as production has steadily declined from 189 metric tons in 2022 to 110 metric tons last year, according to Statista. This is despite the Witwatersrand Basin remaining the world’s largest gold resource and is, in part, the result of load shedding.
Wichard Cilliers, director and head of market risk at TreasuryONE, told Business Report that South Africa’s gold production has been on a downwards trajectory for several years. This decline, he said, is the result of several factors.
Among them is the fact that mines are ageing. “Many of South Africa’s gold mines are deep and old, making extraction more difficult and expensive. The deeper the mines go, the more costly and dangerous it becomes to extract the gold, which reduces profitability,” said Cilliers.
In addition, the cost of electricity, labour, and other operational expenses have been rising in South Africa, squeezing margins for mining companies, said Cilliers. “Power outages and inconsistent electricity supply have also disrupted operations, further hampering production.”
At the same time, said Cilliers, the local mining sector has faced regulatory uncertainty, labour disputes, and policy changes that have discouraged investment in new exploration and mine development. “This has led to a lack of new projects to replace depleting mines.”
Then there are other countries with more favourable mining conditions, like Australia and China, which have been able to ramp up production, further reducing South Africa’s share in the global market, he said.
“While South Africa’s gold production is struggling due to economic and operational challenges, the surge in gold prices has provided some temporary relief for miners. However, the long-term sustainability of this trend would depend on a complex interplay of global economic factors, interest rates, and supply dynamics.
“South African miners may gain in the short term, but the broader issues of declining production and rising costs remain a significant concern for the industry,” Cilliers said.
BUSINESS REPORT