Gold stocks surge as US inflation eases further
• SVB collapse elicited rush to safe havens
Gold miners extended their recent run on the JSE on Wednesday. Gold Fields hit a new high after data showed US headline inflation had softened again, boosting the price of the metal and its outlook.
Gold Fields’ share price rose as much as 3% before pulling back to close just 0.43% higher at R274.75. In the past month, its market value surged by R88.9bn to R245bn.
Gold stocks are sensitive to the metal price, which is in turn, driven by shifts in US inflation and interest rates.
Data released on Wednesday showed US headline consumer inflation rose 5% year on year in March, slowing markedly from February’s 6%.
However, core CPI, which excludes volatile food and energy prices, rose 5.6%.
While US CPI has been heading in the right direction, it is still some way from the 2% targeted by the Federal Reserve, making it tricky to predict a future policy path. But markets, which are forward looking, have priced in a possible pivot in US policy later in the year, suggesting the Fed may cut rates before 2024.
Gold, which tends to perform well when interest rates are low, rose another 0.36% by 7.30pm on Wednesday. At $2,010/oz it has gained more than 20% over the past six months.
“The way gold prices have rallied and how gold stocks also reacted tells me this is a very out-of-consensus move ... few people anticipated this surge,” said Casparus Treurnicht, portfolio manager at Gryphon Asset Management.
“What we do know is that gold is an inflation hedge, but also a safe-haven asset, so it is highly probable that both forces came together to produce this upswing albeit a bit late I’d say.”
Treurnicht said it was worth bearing in mind that share prices only recently began to play catch-up with the rand gold price.
The collapse of US-based Silicon Valley Bank in March triggered a rush to safe-haven assets, indirectly boosting the value of gold miners.
AngloGold Ashanti added 54% to its share price in the past month, with Harmony up 45%, Pan African Resources 38% and DRDGold 37%.
“Gold stocks are generally for shorter term trading opportunities, and they do have their day in the sun from time to time,” said Greg Katzenellenbogen, portfolio manager at Sanlam Private Wealth.
“When there are global geopolitical and economic jitters like we have now it is a good time to hold gold,” Katzenellenbogen said. “As we have probably not fully seen, the secondary effects of such a rapid rise in interest rates should see gold continue to rise in the current environment. When things settle down it will probably be time to reduce exposure.”
The Silicon Valley Bank collapse was attributed to the increase in US interest rates, which were cut to near-zero during the Covid-19 pandemic.