The rand-denominated gold price broke through its all time high during intra day trade but, and could provide some welcome good news to the sector.
Author: Geoff Candy
The rand gold price broke through its all time high made in September 2011 during trade Thursday before dropping back to around the R472 500 per kilogram level.
Gold in all currencies has benefitted from last week's announcement from the US Federal Reserve of an open-ended third round of quantitative easing, but South African producers have also been benefitting from a weak rand:dollar exchange rate.
The rand, which has benefitted from the signing of a wage agreement at Lonmin, has since seen that boost subside somewhat as the pleasure over the agreement gives way to concerns about the precedent that the deal might set.
The rand weakened 1.7% over the day against the dollar, partly as a result of dollar strength, partly on concerns around the mining sector and, partly on the back of the South African Reserve Bank's decision to keep rates on hold.
While the decision itself was of little doubt, the dovish tone to the statement caught some commentators a little by surprise. And, one that is likely to keep the currency volatile and on the back foot.
Assuming then a currency that remains on the weaker side, and an expectation that gold prices in dollar terms are likely to continue higher as more liquidity is pumped into the global financial system, the expectation is that rand gold prices should remain roughly around current levels.
This will be welcome news to the local mining sector which has had its fair share of troubles of late but, it will perhaps have less of an impact across the board as it once might.
Producers like AngloGold Ashanti and Gold Fields, as they have grown their international operations, have become less dependent on the rand price of gold. Currently Harmony Gold, although its sights are firmly focused on Papua New Guinea still produce most of their current production in South Africa and will see a benefit from the stronger rand price of gold.
But, it will be the smaller producers like Pan African Resources, DRDGold, Gold One and Village Main that will be hoping the trend continues.
Many of these operations run marginal mines that have been under particular strain from increased rand-denominated costs like electricity and wages. So, a higher rand price of gold will fall rather far down to the bottom line.