South Africa: Safe-Haven Gold Sparkles as Bourses Keep Sinking

Stephen Gunnion

18 February 2009

Confirmation that Russia's central bank has been buying gold and plans to buy more also boosted interest in the metal.

The spot price of gold surged $30 to $971,65/oz, its highest since last July when it traded at $977,50/oz. In rand terms, gold hit a record high of R9958/oz.

Platinum also rose sharply, gaining $23 to $1088,75/oz.

Last March, gold reached a record $1 032,40/oz, while platinum traded as high as $2 300/oz.

Peter Fertig of Quantitative Commodity Research in Germany said, "The very big uncertainties in the stock market and economy are driving investors into gold and precious metals.

"We are seeing the first attempt at reaching the $1000 mark this week."

Some investors were buying precious metals on speculation that government stimulus packages would lead to inflation, said Fertig.

Following approval by the US Congress at the weekend, US President Barack Obama signed his $787bn stimulus package into law yesterday. Countries including the UK, Germany, France, China and Australia, have been pumping funds into their economies to avert prolonged recession. Central banks have been making funds available to spur lending after the credit crunch.

The latest bout of risk aversion followed a report from ratings agency Moody's that eastern European banks were in danger of default, which would have serious consequences for all of Europe. This sent markets tumbling across the globe, with banking share prices worst affected.

However, the firmer gold price led to a 7% rally in gold shares on the JSE, helping to soften the blow for the local exchange. A stronger gold price has a number of benefits for SA.

Stanlib economist Kevin Lings said that although gold's contribution to exports had shrunk -- from more than 50% in the early 1980s to 10%-12% today -- in an environment where exports were coming under pressure due to the global recession, anything that could offset that, such as a higher gold price, was helpful. "Obviously it helps us given that we are running a big current account deficit and trade deficit," Lings said.

"Any improvement in commodity prices in current circumstances does help us."

Lings said that if the higher gold price was sustained it could help mitigate some of the job losses in the mining industry. Mines, along with the manufacturing and construction industry, have been retrenching in response to slower global demand for commodities and fin-ished goods.

"Gold mining companies are constantly plagued by costs so there could be another benefit if it does mean fewer retrenchments at a time when we are losing jobs," Lings said.

James Moore, analyst at The Bullion Desk in London, said investor appetite for gold was still strong. He expected this bullish trend to con- tinue. Metals group Heraeus Metallhandels said physical buying by dealers as well as longer-term investment by exchange-traded funds were buoying gold.