Scramble for Africa
With the gold price defying gravity, investors will be wondering how to get on board
These are strange times for investors with an interest in the gold market. Look no further than the new record high in the metal this month. It comes during a time of dollar strength, a phase when gold might be expected to weaken. Analysts say central bank buying — chiefly by China — is the main driving force behind the rise in gold’s fortunes.
There are reasons to fear the bubblelike risks of dedollarisation in China, if that is what’s happening. While gold’s status as a safe-haven investment is supported by geopolitics, it’s not supported by investors generally. According to World Gold Council data, there was an outflow of $5.7bn from global gold exchange traded funds in February.
On top of this, equities are behaving weirdly. Harmony Gold became a $5bn company this month, a doubling in value in a year. But the world’s two largest gold producers, Newmont and Barrick Gold, have barely responded to the gold price. In fact, shares in the behemoths are respectively 27% and 12% lower in the past year. To underline the point, the gold price gained 13.4% in that time.
“I still do not fully understand what is holding precious metal stocks as they have not managed to test 2023 April-May highs when gold was trading at the $2,050/oz-$2,080/oz level,” wrote Rashad Hajiyev, an analyst for Edinburgh-based RM Capital Markets. While Hajiyev expects “an explosive rally out of the blue”, he acknowledged it was becoming difficult to justify the lag in equity valuations.
How then might the intrepid investor tackle gold’s rise? Most of the gold counters on the JSE have run fairly hard, suggesting there’s little value on offer. Gold Fields is 16% higher this year. AngloGold Ashanti is 24% higher, though there is potential for more upside if you believe its primary New York listing will drive the rerating the company craves. But for something different, investors might want to consider some of the small- and mid-cap gold miners, especially those operating in West Africa.
There are several reasons this makes sense. African gold miners often trade