Sometimes an entire market runs on a single story. Last Friday, that story was gold. A climbing bullion price lifted the Johannesburg Stock Exchange and firmed the rand on the same day, even though the domestic economic news underneath was soft.
Gold rose 2.4% on Friday to $4,341.94 an ounce, a seven-week high, capping a 7.4% gain over the week. That sent the mining counters flying: AngloGold Ashanti jumped 9.7%, Gold Fields 8.8%, Harmony Gold 7.3% and Sibanye-Stillwater 6.9%. The all-share index closed up 1.9% at 117,518 points. The rand, meanwhile, firmed to around R16.33 to the dollar, riding the same metal rather than any home-grown good news.
Why gold is running
A few forces are pushing the price. Central banks — China in particular — have kept buying, while weaker-than-expected US jobs data has strengthened bets that the Federal Reserve will cut interest rates. Lower rates tend to weaken the dollar and push down bond yields, which makes gold relatively more attractive to hold. Easing tensions in the Middle East and softer oil prices have also cooled inflation fears.
For South Africa, a country that both mines and exports gold, all of this is a useful cushion — it supports the terms of trade and helps offset higher energy costs tied to tensions between the US and Iran. Gold was also on track for its biggest weekly gain since January.
The catch
Here is the uncomfortable part. The very thing lifting both the market and the currency is one dollar-priced metal, set on trading desks abroad rather than by anything happening in Pretoria. Local prints barely mattered: manufacturing output actually fell 4.3% year-on-year, and the market shrugged. Even the domestic bright spots were quiet ones — South Africa's net foreign reserves edged up to $71.76 billion at the end of July, from $71.34 billion in June, and the benchmark 2035 government bond weakened slightly, its yield up four basis points to 8.43%. Currency strategists at TreasuryONE expect traders to stay cautious and hold their dollar positions until the Federal Reserve's path is clearer. A market and a rand riding on bullion are a market and a rand exposed the day gold turns.
