[miningmx.com] – POLITICAL blunders in South Africa that weakened the country’s currency and a recovery in the dollar price of gold following the US rate hike announcement on December 16 have given gold stocks a lift.
On a 30 day basis, there has been some remarkable buying of Gold Fields, Harmony Gold and Sibanye Gold which were 24%, 49% and 25% higher whilst on a 90-day basis, Sibanye Gold was 74% higher while DRDGold was up 47%.
The buying has left some Johannesburg-listed gold stocks ending the year in a far happier position than perhaps even gold bulls could have expected with AngloGold up 14% on a one-year basis. DRDGold, however, is Johannesburg’s best performing gold stock having gained 23% this year.
A decision by the US Federal Reserve to embark on a round of rate hikes, starting with a 25 basis point increase this month, was largely factored into the dollar gold price, but the expectation of it happening sat on gold shares.
Now, however, short positions in gold were being unwound somewhat whilst there was also an improvement in physical purchases of gold.
The world’s biggest gold ETF, the SPDR Gold Trust, rose by almost 3% last Friday leaving total holdings up by almost 13 tonnes on the week. This was the biggest weekly increase since January 30 and it followed seven consecutive weeks of reduction.
“Hedge funds held a record short position going into the announcement and they have been reducing their negative exposure during the past couple of trading days,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank.
“The combined demand of short-covering in the futures market and fresh buying through exchange-traded products has helped trigger a rally to $1,075 from the $1,048 low last Thursday,” he said in a note today.
“The technical picture would further improve on a break of trendline resistance at $1,082 as it would bring the key $1,100 level back into play,” he added.
Back in South Africa, the bewildering change of finance minister in which President Jacob Zuma replaced the incumbent twice – eventually settling on Pravin Gordhan, a former finance minister – delivered a hefty blow to the rand.
The currency fell to below R15 to the dollar and whilst it reversed some gains, not all the damage was undone as investors remained on the alert regarding the ability of the government’s top officials to spring surprises.
Goldman Sachs said in a note on December 10 that a weakening rand would provide “a tailwind” to South African gold stocks and provided a long-term risk to its advice to sell or be neutral on certain shares.
“Our sensitivity analysis shows that a 10% change to this assumption would lead on average to a 20% EBITDA uplift (all else equal), with Harmony and Sibanye the most heavily impacted,” the bank said.
