Gold has given back a lot of its year. On Friday the price fell to its lowest level in a year, about 30% below the record it set in late January, as investors bet that interest rates would stay higher for longer, Reuters reported. Over the past month alone it has lost close to 6%.
South Africa's gold shares have gone the other way. Over the same four weeks Harmony Gold rose almost 14% and Gold Fields nearly 6%, according to Trading Economics. Platinum shows the same split: the metal lost about a sixth of its price in a month, while Sibanye-Stillwater's shares gained 14%. Harmony now trades about 16% above its lowest price of the past year, with gold back near its own.
The gap matters because miners are geared to the metal they dig. Their costs do not fall when the price does, so their profits, and usually their share prices, swing harder than the commodity itself.
Nick van Rensburg's warning
That gap is what bothered Nick van Rensburg on All Weather Capital's commodities call on Monday. Gold, he pointed out, is sitting at its low for the year, while "the gold shares are actually far above their lows still". Platinum and palladium, he said, are now well below their previous lows of July while some of the shares are still above theirs, so "there could be a catch down". The warning sign, in his words, is that "if it doesn't bounce", the shares have outperformed the metal "quite significantly".
The rest of the All Weather team was less worried about the platinum shares, pointing to how close some already are to their lows for the past year, but agreed that the gold shares look more exposed. On precious metals overall the team says it is neutral for now, and could turn bullish if there are signs of diplomacy in the Gulf.
What the year-to-date numbers say
Measured from January, the picture runs the other way. Harmony is down about 27% for the year and Gold Fields about 23%, while gold itself is down a little under 10% in dollars. The shares are priced in rand and the metal in dollars, so the comparison is rough, but it means the gap Van Rensburg describes is about distance from the lows and the past month rather than the whole year.
What gold does next is tied up with oil and interest rates. Last week, worries that energy-driven inflation would bring more US rate increases drove much of the selling. The team's bull case is steady central bank buying and fewer rate rises than markets expect. Van Rensburg's base case for the Gulf is still escalation, which is the first item on the team's list of things that would be bad for gold.
Views quoted from All Weather Capital are their own and not financial advice. All Weather Capital is an Authorised Financial Services Provider (FSP 36722). Full disclosures are available at allweathercapital.co.za.
