The stars are suddenly lining up for a rate cut on Thursday — what a difference a week makes. Gold’s astonishing run has taken it past another milestone with the precious metal’s price vaulting $5,000 an ounce for the first time this past weekend – and it’s taking the rand along on the ride. The rand on Monday was flirting with 16.0/dlr, its best level since June 2022, as the prospects of another US government shutdown left the greenback reeling, triggering a fresh flight of investors into the safe haven of gold.
For South Africa, the silver lining has been a rand rally, and this week the raised prospects that the Reserve Bank’s Monetary Policy Committee (MPC) may cut when it makes its next interest rate decision on Thursday. “Financial markets have priced in a 44% probability of a 25 basis point cut occurring in the repo rate at this week’s MPC meeting, still below 50% likelihood, but up from only a 20% probability a week ago, as the rand continues to gain,” said Investec chief economist Annabel Bishop. “The gold price has convincingly pierced the $5,000 mark, aiding rand strength, with precious metals (including platinum), South Africa’s key export, and gold benefiting in an environment with high geopolitical tensions.” Gold’s latest surge was reflected on Monday in the share price of South African producers, with both Harmony and Sibanye-Stillwater adding over 2% and Gold Fields climbing around 5%.
The stronger rand is a double-edged sword for them as their cost base is largely in the domestic currency, while gold is priced in dollars. It all makes for an interesting week ahead for South African markets.DM
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