Gold is not at the point of gloom and doom as it is expected to recover due to its cyclical nature.
This is according to Bevan Jones, who is the CEO of Thebe Resource Incubator. He offered that gold is typically traded as an interest rate play.
“It is very much a currency play. It is very much related to the US dollar, and they have seen a currency impact on the cost side. On the demand side, I think certainly we will see a lot more demand from China.”
“Every man and his dog have rushed to equities in China, and got the fright of their lives, so they’ll go back to being gold bugs,” he explained.
Jones substantiated that the rise of the new BRICS bank will boost demand as it will be looking to hold “significant gold reserves”. “So while other central banks have reduced their gold reserves, the BRICS bank might be a significant holder of gold.”
Gold producers responded to CNBC Africa on what it would mean if we saw the gold price fall below the $1000 mark.
[DATA ANG:AngloGold Ashanti] responded, “The latest price movements and the fact that gold producers are price takers makes clear the need for AngloGold Ashanti to continue its emphasis on actively controlling costs whilst looking for portfolio improvements and operational efficiency.”
The gold miner further called for cooperation from the country’s government and labour.
[DATA SGL:Sibanye Gold] told CNBC Africa that, “Despite the recent decline in the dollar gold price to below US$ 1,000/oz, a corresponding depreciation of the rand relative to the US dollar has ensured that the rand gold price has remained well above the R420,000/kg level. This is assumed for Sibanye’s life of mine planning and the declaration of gold mineral reserves.”
It further points out that Sibanye’s core operations still rank among the highest grade gold mines in the world. The resultant inherent operational flexibility of the core bodies will ensure that they can be restructured to remain profitable at a significantly lower gold price.
Jones tabled to CNBC Africa the comparative evaluation of gold to other precious metals, and concluded that gold fell only 17 per cent in the past year whereas iron ore has dropped in the range of a 150 per cent.
Iron has been dealt a raw dea,l according to Jones. Steel plants have been closing down in China because of pollution and growth concerns. There has been massive oversupply on the production side as well.
“Iron ore is one of those industrial commodities that I call the more intelligent commodities that actually tell you what’s going on in the state of the world. The others are coal, copper and dry freight which never recovered its 2008 low,” he explained in context.
Jones attached the numbers to some of these commodities slippery slide detailing that coal has fallen 26 per cent, copper by 30 per cent in the last year and crude oil about 90 per cent.
“It’s been pretty bad, all round.”