[miningmx.com] – A COMBINATION of a recovery in the dollar gold price and rand weakness since the turn of the year added esprit to the value of South Africa’s listed gold stocks and could signal a re-rating.
“While we remain cautious on the short- to medium-term outlook for the gold price … [there will be] … some reprieve from the rand as it remains weak against the US dollar,” said Macquarie Research in a note dated January 15. It added the market “… should see a relative re-rating of South African gold majors to their peer group”.
Shares in AngloGold Ashanti, Harmony Gold, and Sibanye Gold have gained 10.6%, 11% and 10.3% since January 2 while there has been an 5.2% increase in the value of Gold Fields shares over the same period.
Poor economic figures from the US and the likelihood of short-covering, combined with pre-Lunar new year sales from Chinese buyers of physical gold has added vim to the gold price after slumping towards the end of 2013 amid expectations of a staged reduction in the US bond-buying strategy.
Unfortunately, the recovery in the gold price is not expected to last. “Given expectations for synchronised global growth, gold’s role as a safe-haven asset has diminished,’ said BMO Capital Markets in comments about its expectations for 2014. It expects the gold price to average $1,250/oz in 2014. The price of gold is currently around $1,241/oz.
Ole Hanson, head of commodity strategy at Saxo Bank Capital Markets, said China’s demand for physical gold was due to dry up following its Lunar year-end celebrations at the end of January. Money must start to flow back into ETFs to provide convincing evidence of confidence in gold again, he added.
“In order for the bulls to gain the upper hand, traders need to see that the market is not just being driven by speculative short covering, but also conclude that investor money has begun to flow back into the market,’ he says.
However, the rand is expected to continue to support the share prices of South African gold producers, at least in the short-term.
“The R/kg basket price of ~R425,000/kg is in line with what the South African majors received in 2011-2013,” said Macquarie Research.
“This compares favourably to the collapse in the US dollar gold price. For the pure South African gold majors this spells a relatively healthy earnings environment at present and we could see some surprise earnings upgrades for [the first quarter of 2014] from the market if these conditions persist,” it said.
“Obviously, with our expectation of a stronger Rand into 2H14, this will be relatively short-lived,” Macquarie added.
Goldman Sachs issued very bearish comments on the gold price earlier this year. Speaking to CNBC, the bank’s Jeffrey Currie said: “Our view there really is driven by the expectation of the US economy reaching escape velocity.
“Essentially, when you think about a short on gold … it’s essentially just a bet on a substantial recovery in the US economy,’ Currie said.
Goldman Sachs has an end-of-year price taret of $1,050/oz equal to a 16% drop from the current price.
