SA gold stocks slay records as virus bolsters bullion

THE red-hot rally in gold prices driven by investor concern about the coronavirus pandemic and its impact on the global economy has propelled South African gold stocks to record-slaying highs.
A Johannesburg index of producers has surged more than 90 percent this year, even as the broader South African equities benchmark remains in the red for 2020. The sector rose another 3,2 percent to an all-time high on Friday.
“Gold mining stocks are essentially leveraged plays on the gold price,” said Seleho Tsatsi, an analyst at Anchor Capital in Johannesburg.
“Relatively small moves in the gold price result in big swings in profitability for the gold miners, because these businesses have big fixed-cost bases.”
Gold has advanced 19 percent this year, driving it within reach of the all-time high price of $1,921 an ounce reached in September 2011.
Vast amounts of global stimulus to shield economies from the ravages of Covid-19 have pushed real yields below zero and made bullion more attractive.
The rand price of gold has risen 44 percent, as the currency weakened against the dollar, improving the profit margins for local producers.
Johannesburg’s five best-performing stocks are all from the sector, with DRDGold closing in on a fourfold gain for 2020. Pan African Resources has climbed 99 percent, Harmony Gold Mining Co. 94 percent, Gold Fields 90 percent and AngloGold Ashanti 72 percent. Their breakneck ascent has activated at least one warning that the gains may be overdone.
The 14-day relative strength index for the gold stocks gauge is at 73, above the level of 70 that suggests to some technical analysts that the securities are overbought. Even so, there could be further upside.
“Really, aggressive central bank action, not just from the US but central banks around the world following the pandemic this year, is probably the biggest driver of gold prices at the moment,” Tsatsi said.
“As long as that continues, which it appears as if it will in the short-term, it should be supportive to gold prices.”
— Bloomberg