Investors find safe haven in bullion as JSE fall continues

THE JSE fell for the second day running on Monday, pushing investors to the gold market — thanks to a higher gold price and a weaker rand.

The rally handed gold miners such as AngloGold Ashanti and Sibanye Gold a huge boost in an otherwise very weak equities market.

As investors fled the plunging stock markets, they found sanctuary in gold and other safe-haven assets, such as the Japanese yen and the US treasury bonds.

The gold miners’ index has jumped 15% since Friday, leaving the benchmark more than R20bn richer. This compares with the all share index that has dropped more than of 6% in the same period, wiping off more than R500bn in total value.

As the store of value, the demand for the precious metal tends to rise in times of uncertainty, or when investors are less confident about the direction of the international economy.

The fallout of the Britain’s vote to leave the EU has provided a tailwind for spot gold, which bounced around the 2014 highs of about $1,325.39/oz in late trade on Monday.

Mergence Investment Managers equity analyst Izak van Niekerk said the higher dollar-dominated gold price and a weaker rand would improve gold miners’ revenue and cash flows. Gold stocks, which in the past few years have lagged the broader market, at least in terms of the share price performances, have bounced back strongly in the past six months, having more than doubled in value.

AngloGold Ashanti has reclaimed its top spot in the JSE top 40 index, while Harmony Gold is now back in the mid-cap index from the small-cap category. Gold Fields and Sibanye were earlier in 2016 marked as reserves for the possible inclusion in the top 40 index.

“The recent events paint a global landscape of very low interest rates for longer. The expected US rate hike is off the table for now,” Absa Wealth and Investment Management head of private clients asset management Craig Pheiffer said.

In the wake of the global market turbulence that followed the Brexit vote, the world’s major central banks are expected to maintain loose monetary policies.

The Bank of England on Friday committed itself to help stabilise the nervous markets, while the US Federal Reserve is expected to hold off on raising lending rates.

In a higher interest rate scenario, the demand for gold tends to drop, as it has to compete with other higher-yield asset classes.

“In my opinion, we need to keep an eye on lawmakers and how fast these things will happen,” said Casparus Treurnicht, portfolio manager at Gryphon Asset Management, referring to the Brexit vote that has sent stocks from Asia to Europe and US into a tailspin. International markets are still uncertain about when the UK will invoke the so-called Article 50, which sets out the stage for talks between Britain and the EU over a two-year period regarding the exit.

Outgoing British Prime Minister David Cameron has left such responsibility of invoking this clause to his successor, who will be appointed only in October.

The stalemate threatens to further undermine the global economy, which has been punching below its weight for nearly a decade since the 2008 financial crisis.

“Let’s not forget that the EU is still bleeding since the eurozone crisis happened, and from an economic point of view the UK and EU need each other more than ever,” Treurnicht said

“These question marks are in favour of gold and gold stocks.”

The low international growth scenario and uncertainty about Britain leaving the EU feed into gold price, which has rallied 23% in dollar terms.

The picture in other commodities, such as copper, has been muted, partly on account of low demand and spare capacity.

“With such massive uncertainty there’s very little place to hide in the markets. Typically a stronger dollar has been accompanied by a weaker gold price and vice versa. However, while the US dollar and the Japanese yen have appreciated, we’ve seen the gold price push higher too,” Pheiffer said.

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