Gold is on a run, and South Africa's market is riding it. Bullion climbed for a third straight day, gaining more than 2% to almost $4,165 an ounce, after the prospect of an interim deal to reopen the Strait of Hormuz eased inflation fears and trimmed bets on further US interest-rate rises. Spot gold was last up 2.1% at $4,164.21, with silver 3.4% higher and platinum and palladium also climbing.
The rally has an obvious local beneficiary. South African mining shares tend to rise when dollar-priced metals do, and on the day the JSE Top-40 ended the session up 1.1%. The rand firmed too, to around 16.32 per dollar, holding its ground even as data showed manufacturing output slipping year-on-year.
Why the Fed is doing the work
The move is less about South Africa than about Washington. Markets are now fully pricing in just a single US rate increase by year-end, down from two as recently as last week. Less monetary tightening is generally good news for gold, which pays no yield and so competes better against interest-bearing assets when rates are expected to stay lower. Appetite is showing up elsewhere, too: gold-backed exchange-traded funds in China saw 14 straight days of inflows to Monday, the longest such streak since March.
The catch inside the rally
Here is the quiet irony. The same gold strength that lifts South African miners also tends to firm the rand, and a stronger rand trims the local-currency value of the dollars those miners earn. A gold rally that pushes the currency up is, in part, a gold rally that pinches the margins of the very companies driving the index higher. It rarely cancels the gain outright, but it takes the edge off. For now, the direction of travel is set by forces well beyond the JSE: the standoff over Hormuz, the path of US inflation, and how many more times the Federal Reserve moves. South African investors are, in effect, passengers on a global trade. The question is how long the gold tailwind lasts once the Hormuz uncertainty clears, and whether the rand keeps quietly clipping the wings of the miners enjoying the ride.
