Gold prices surge amid subdued deliveries

ZIMBABWE has lost millions in potential foreign currency earnings after a surge in global gold prices amid subdued local deliveries.
Over the past seven weeks, gold prices have gained about 10 percent to a six-month peak of $1 292 per ounce as of Tuesday, moving closer to the key $1 300 an ounce level that was last breached in June 2018.
This comes as concerns about an economic slowdown have gripped global markets and fuelled demand for safe-haven bullion.
Meanwhile, Fidelity Printers and Refiners’ (FPR) records show that local gold deliveries have slumped from 3,9 tonnes in August to 1,4 tonnes in November, with volumes from small scale miners, which had dominated local gold production of late, shrinking from a peak of three tonnes in August to 0,6 tonnes in November.
Fradreck Kunaka, FPR’s general manager, says the slump has been caused by government’s recent policy changes.
“It is basically the reaction of the gold industry to government policies of the FCA Nostro and RTGS FCA as well as the two percent intermediated money transfer tax,” Kunaka said in emailed responses to The Financial Gazette.
Researchers at local advisory firm Equity Axis say the plunge in gold deliveries in the same period as the rise in inflation “can be related given the lack of a floating exchange rate in Zimbabwe”.
“Gold miners have stated that they have been unable to fully recover their export earnings in real US dollars, with some claiming that they received as low as 15 percent in export retentions.
“In order to hedge themselves, small scale miners have resorted to side marketing while primary producers have elected to withhold stocks or slow down production,” the research firm said in a comment published recently.
Official inflation spiked to a post-dollarisation high of 31,01 percent in November from 4,29 percent in July amid worsening hard currency shortages.
Primary miners have also struggled owing to the foreign currency shortages.
In October, RioZim temporarily shut down its gold mines, Cam & Motor, Renco and Dalny due to inability to procure inputs and consumables.
Another gold miner, Falcon Gold Zimbabwe, says some of its key creditors have cut off critical supplies as a result of the miner’s inability to access foreign currency.
“The inability of gold producers to access foreign currency has resulted in failure of the company to pay outstanding amounts to foreign creditors since May 2018,” the company said in a statement recently.
Analysts at Danish investment firm, Saxo Bank say gold is likely to break higher and set its sight on the previous high around $1 380, “if the fourth-quarter theme of lower dollar, stocks and yields carries on”.
There have been several signs recently that the global economy continues to deteriorate.
China’s manufacturing for December declined for the first time in 19 months. Meanwhile, the Eurozone’s manufacturing grew by its lowest amount since 2016.
The market has also been rattled by the rate at which US Treasury bond yields continue to fall.
Analysts say this is distressing to investors because historically whenever bond rates fall below the federal funds rate, it has preceded either turmoil in the financial markets or a slowing economy. newsdesk@fingaz.co