South African Gold
Dear Gold World Reader,
This week you’ll start receiving regular commentary from Sam Hopkins, international editor and research analyst at Angel Research. Sam has accompanied me deep into gold mines in the Mexican Sierra and ventured by himself into the heart of Israel’s copper industry, which he highlighted for Wealth Daily readers last summer.
Sam’s a big-time international bull, and with emerging economies like China and India sending materials demand through the roof, you’ve got to be up on the global trends to make money in metals these days.
Until next time,
Luke Burgess
Editor, Gold World
South Africa Can’t Catch a Break
The South African currency is down after a big rally, and so is gold. And even though the rand is for all intents and purposes a resource currency, the two aren’t directly linked in their drop. Energy factors in big-time, and leads us back to the bullish long-term case for gold.
A witches’ brew of profit-taking on South Africa’s money exchanges after the rand hit about 7.20 per dollar, and falling industrial output due to striking and power shortages are pushing the local paper’s value down.
As for gold, energy has dropped and brought more investors out of their cellars, which in many cases means lessening gold holdings that had served as a last resort.
The Congress of South African Trade Unions, or Cosatu, has sway not only over mines but also factories and other major industrial bulwarks. What this biggest national union is protesting is a huge electricity price hike (27.5%) that will give the national utility funding for a major expansion project.
That undertaking by Eskom is itself a response to devastating power shortages that shut down mines and smelters for a full business week in January. Now, AngloGold Ashanti has been shut for three days due to the Cosatu strike, and Anglo American reported only half the normal attendance by its workers nationwide.
So on one hand we have mine shutdowns because of energy shortfalls, and on the other hand production is stopping because workers are upset about the remedy to the very dilemma that kept them home this January.
In either case, production will squeeze new gold supply starting in the medium term, and we should see a recovery off support levels around $860 per ounce and kick back into the long term uptrend we’ve seen roar forward over the past decade.
Buy Physical Gold
So what’s the play on South African gold?
Don’t play it, buy gold itself and wait for the combo of power cuts, labor issues, and restored market demand to send your physical gold further up in value.
As Greg McCoach told you at the end of July, borderline criminal short-sellers and panic selling by investors who don’t have the stomach for corrections have hit junior mining stocks hard, and that carries through to even the giants who own Africa’s prolific mines.
So check out your options for purchasing physical gold, and skirt the problems that keep surging to the surface in South Africa. Also, you should be aware of London’s growing market for metal exchange-traded funds that handle solid bars.
It’s an intermediate step between holding bullion and buying stock in companies that will face credit, energy, and labor challenges for years to come. Plus, many online brokerages now let you trade London shares just as easily as you would swap on Wall Street.
LSE:PHAU is the ticker for a fund run by ETF Securities, a British firm. It’s backed by physical gold held in HSBC, a top-notch custodian bank that just reported strong first-half earnings despite turmoil in the banking world.
As you already know, the more barriers you have between your money and a global financial market meltdown, the better off you’ll be.
Regards,
Sam Hopkins