Gold led the rout of commodities as investors unwound their positions, accumulated before the US Federal Reserve announcement to end quantitative easing.
Gold, silver and platinum tumbled as the dollar’s rise to a five-year high cut demand, wiping almost $2 billion (R22.1bn) from the value of precious metals-backed funds.
The commodity prices declined as the Republicans soared to victory on Tuesday in US mid-term elections to win both US Houses of Congress and Bank of Japan governor Haruhiko Kuroda said he saw no limit to the steps the central bank might take to defeat deflation.
Gold, which is perceived to be a hedge for investors, dropped to a four-year low as bullion for immediate delivery slid 2.3 percent to $1 141 an ounce in London.
On the JSE, South African gold producers were hammered yesterday with AngloGold Ashanti, Gold Fields and Sibanye Gold declining by 5.89 percent to R99.04, 2.52 percent to R35.99 and 3.45 percent to R19.60 respectively at the close of trade.
Harmony Gold, which released its results for quarter to September, yesterday closed 0.44 percent lower to R18.27.
This raises concerns for the ailing sector although the price slide will be cushioned by the weakening rand against the dollar. Lingering labour issues, and higher input costs remained problematic, said Jacques Botha, the chief economist at Cape Town-based Afriforesight.
“A weaker rand against the US dollar will help cushion the gold companies against declining prices, and so will the weaker Brent crude oil prices which declined to $82 a barrel today. But labour-intensive mines would do worse in this period because of the huge wage inflation,” Botha added.
Gold fell 2.6 percent to $1 167.49 an ounce on Friday, its lowest level since July 30, 2010, as economic figures out of the US were better than expected, and China said that it was probing a surge in precious metal imports.
The cooling of the Chinese economy would impact the global commodity market including South Africa, one of the biggest beneficiaries of the Chinese boom.
Jihad Jhaveri, an investment analyst at Kagiso Asset Management, said gold producers would have to focus on what was in their control.
“For example, corporate costs, which expanded significantly in the boom years, have been reduced substantially over the last 18 months.
AngloGold for instance has managed to cut its corporate costs from $290 million a year,” Jhaveri added.
The Federal Reserve is moving closer to raising interest rates just as other central banks seek to spur their economies.
Rising rates cut gold’s allure because bullion generally offers investors returns only through price gains, while a stronger dollar typically curbs demand for a store of value, according to Bloomberg.
Additional reporting by Bloomberg