Ukraine tensions lift gold, hit rand
04 March 2014
by Asha Speckman
Johannesburg - Prices of key commodities, including gold and wheat, rose yesterday, while the rand slipped along with global stock markets, as investors braced for more fallout from Russia’s stand-off with the West over Ukraine.
And for as long as the Ukraine crisis became “messier every day” gains in the gold price were likely to be sustained, Peter Major, a Cadiz analyst, said. The yellow metal is considered a safe haven in times of geopolitical crises, and its allure boosts the outlook for gold producers.
JSE-listed Pan African Resources bucked a weak JSE trend to gain 10.66 percent to close at R2.70, and AngloGold Ashanti shares rose 4.11 percent to R198.38. Shares of Sibanye Gold and Harmony Gold also advanced.
Gold for April delivery rose as much as 2.2 percent to $1 350.50 (R14 592) an ounce, the highest since October 30 last year. Although Ukraine may be miles away, the unfolding confrontation between Russia and the West will affect what happens in Europe, a key market for South African exports.
Speculation about the potential for South Africa to offset any precious metals and minerals productivity shortfalls that Russia might encounter was also seen as a catalyst for the rise in gold, economist Nicky Weimar at Nedbank said.
Major said, however, that Russia’s production of platinum group metals was undertaken in the far north, near the Arctic Circle and could be unaffected by the turbulence. “It’s a knee-jerk reaction,” he said about the surge in shares.
Russia holds huge reserves of almost all major industrial raw materials. Together with South Africa, it produces more than 80 percent of the total platinum supply, according to the Mining Intelligence Database.
Ukraine, with a rich agrarian heritage, was once the Soviet Union’s bread basket.
It could “make trouble” for Russia, by turning off oil and gas pipelines that traversed its territory to Europe, Major said, adding that this, however, would cut off a revenue supply for Ukraine.
The fallout is also likely to affect South Africa, which imports wheat and has started importing yellow maize from Ukraine as huge export demand and local consumption deplete stocks before the next harvest. South Africa was initially expected to import maize before the end of the marketing season next month after it had committed much of its harvest for exports.
Konrad Keyser of Brisen Commodities said traders had a shipment of 40 000 tons of yellow maize, mainly used for animal feed, due from Ukraine.
Wheat for delivery in May increased 2.5 percent, the biggest increase for a most active contract in eight months, to R3 894 a ton by the close on the SA Futures Exchange.
Thys Grobbelaar, an analyst at grain trader Senwes, said: “The unrest situation in Ukraine is a major concern for us as well at the moment. A lot of our wheat comes from Ukraine.”
Ukraine is South Africa’s biggest supplier of wheat after Russia, accounting for 36 percent of imports since the season started at the end of September last year, according to Senwes data.
Concerns about the political drama were likely to be shortlived, some analysts argued.
Martyn Davies, the chief executive of Frontier Advisory, said: “It’s going to blow over. The temperature is likely to cool down over the next few days.”
He added that South Africa and Brics counterparts Brazil, China and India were unlikely to comment because there was no real geopolitical alignment between the countries.
South Africa would most likely maintain its close ties to Moscow.
Nigel Green, the founder and chief executive of deVere Group, which has more than 80 000 clients and $10bn under management said that, with time and as “the world becomes accustomed to the new and/or existing realities, investors are likely to classify the Ukraine-Russia stand-off as ‘a local issue’.
“Global financial markets will then return to focusing on key fundamentals, such as the improving trend of US economic data, rather than to what is happening in Ukraine.”
On the currency front, the rand weakened alongside other emerging markets yesterday as investors dumped high-yielding assets in a wave of risk aversion fanned by political tensions in Ukraine.
By 5pm, the local unit was bid at R10.8052 to the dollar, 10.23c weaker than Friday’s bid at the same time.
“Everything has been responding to this depressing news of the tensions between Russia and Ukraine and the potential for that to escalate,” ETM market analyst Sean McCalgan said.
“It’s essentially a broader move away from emerging market currencies as a whole and with that performance the rand is a middle-of-the-road performer. It isn’t really out of tune with what’s going on globally.”
Crude oil prices jumped. Brent crude hit a peak of $112.39 a barrel, its highest since December 30. US crude jumped $2.09 to $104.68 a barrel. – With additional reporting by Bloomberg and Reuters
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