SA gold shares defy strong rand

Ines Schumacher | Thu, 03 Sep 2009 15:28
[miningmx.com] -- SOUTH African gold shares are tracking the US dollar gold price, despite a warning that the strong rand will negatively impact gold companies’ bottom lines.

The US dollar gold price has risen steeply since Tuesday, rising from $954 per ounce on Tuesday to $976/oz on Wednesday. It is currently around $981/oz.

The rand gold price, however, is at R245,649/kg, compared to its year high of above R350,000/kg, as the rand firmed to around R7.75 to the dollar.

Gold Fields, AngloGold Ashanti and Harmony Gold were the big movers on Thursday as they moved up 4%, 6% and 5% respectively.

DRDGOLD and Simmer & Jack also moved up strongly too, with only Central Rand Gold defied the trend by plunging 13%.

RBC Capital Markets released a report on Wednesday cautioning investors that the strong rand will eat into South African gold companies’ earnings, which will also be affected by rising input costs like electricity and wages.

RBC argued that South African gold shares are trading near the top end of historic trading ranges, not yet reacting to the impact the stronger rand is having in the rand price of gold.

“South African gold shares seem to be tracking the US dollar gold price rather than the rand gold price, which I find odd,” Virtual Metals analyst Matthew Turner said.

He said the US dollar gold price is trading at close to its yearly high whereas the rand gold price is “nowhere near” its yearly high.

“I think it indicates that South African gold shares have become more internationally traded by US and European investors and they are looking at the US dollar gold price,” Turner said.

A South African gold analyst agreed with this reasoning, adding that the gold companies ticking up the most have exposure outside of South Africa and to the rand gold price.

“Especially the gold majors have about 50% of their shareholders sitting in the northern hemisphere and they tend to – rightly or wrongly – look at the US dollar gold price,” he said.

Looking at the recent surge in the US dollar gold price, the analyst said the price is above his expectations. “I see the pressure lying more on the upside though, so I’m not entirely surprised at the way the price is going,” he said.

South African gold executives have all agreed they expect the gold price to trend upwards, with most seeing it breaching $1,000/oz.