Movement in the market for exchange-traded funds that are backed by precious metals has been lively lately, to say the least. Not only have gold prices consistently risen over the course of 2016, but the entire mining industry has been lifted by this action.
South Africa Gets Much-Needed Boost
The mining industry in resource-rich South Africa is the heart of the country’s economy, so the multi-year downturn for global mining has had an acute effect on Africa’s second-largest economy.
The country is among the world’s leading producers of gold and platinum, but has been plagued for years by a case of Murphy’s Law—”whatever can go wrong will go wrong.” It wasn’t merely a downturn for the miners. This caused major mining companies operating in the country like Anglogold Ashanti (AU), Randgold Resources (GOLD), Sibanye Gold (SBGL), and Gold Fields (GFI) to consider cost-cutting options.
In response, a rash of workers’ strikes spread across the industry, causing shutdowns of platinum mines for months at a time. Upheaval in the government’s Department of Mineral Resources also contributed to the instability, as the government went back and forth on naming new ministers before eventually settling on the same official that had previously served in the key cabinet position.
As the precious metals have rebounded in 2016, however, South African miners have also improved. The sector enjoyed its best monthly rally in 17 years during February, recovering from an 11-year low. The leading platinum exchange-traded product, the ETFS Physical Platinum Shares (PPLT) surged 7.5% while an index of the country’s mining firms advanced 5.8% on Tuesday alone.
Spot platinum traded above $940/oz on Wednesday, up from multi-year lows around $820/oz in January.
However, it remains to be seen if the industry has fully emerged from the doldrums. Several observers are encouraged by the rally, but aren’t quite ready to declare an end to the bear market.
Gold ETFs Have Room to Run
The performance for gold ETFs in general has been much the same, yet more folks are willing to project the current rally forward when it comes to gold prices. Several analysts are calling for gold to trade above $1,400/oz over the course of the year. Even with a 16% increase in the spot price thus far in 2016 (and 10 months to go), a gold price finishing above this level would represent an impressive 32% increase from the beginning of the year.
Unless there is a dramatic and unexpected reversal in global monetary policy, it seems reasonable that precious metal prices would continue to climb. Speaking to Yahoo! Finance, Mark Newton from Newton Advisors foresees “bullion prices breaking well above a significant trend line in place for over a year as a result of a dropping interest rates and a falling U.S. dollar.” These two overarching factors are among the main drivers of the global economy and are not expected to change any time soon.
Moreover, even if the Federal Reserve does raise interest rates this year, thus boosting the strength of the dollar, this will only generate more safe haven demand for gold as a defense against the strife such a divergent policy would cause in Asia, Europe, and elsewhere.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.