Global trade and political tensions are conspiring to return gold its previous status as the ultimate hedge in 2020 going forward.
Gold has rallied by $100 over the past month to hit $1 550 per troy ounce (toz).
Just last week, gold surged to its highest in six-year amid rising tensions in the Middle East. And the Goldman Sachs Group Inc sees further impetus in the gold price going forward.
“History shows that under most outcomes gold will likely rally to well beyond current levels,” said Goldman analysts in a recent note.
It’s “consistent with our previous research, which shows that being long gold is a better hedge to such geopolitical risks.”
These recent positive projections on gold are already coming on the back of longer term projections in the last quarter of 2019 that are backing a higher price.
“If you want to know where gold prices are headed in 2020, it may be constructive to look at the yield on US Treasuries. As of November 29, the nominal 10-year yield was trading at 1,78 percent, which is below the current annual rate of US inflation, according to the Department of Labour’s October report.
“What this means is that the real yield on the 10- year T-note is a big fat 0 percent.
“When this has happened in the past, it was historically prudent to replace bonds with gold.
“During the last major gold upcycle, the yellow metal went from the mid-$200s up to $1 900 an ounce. You can easily get a fivefold increase or more in its price, which is why I believe $10 000 gold could happen the longer supply trails behind US money supply,” said Frank Holmes of US Global Investors.
Although gold is one of Zimbabwe’s major exports, the country could fail to take advantage of the expected bump in prices of the precious mineral.
There is no doubt that gold is important for the country’s economy; an analysis of the more granular four-digit Harmonised Tariff System code level (of the Harmonised Commodity Description and Coding System), gold represented Zimbabwe’s most valuable exported product at 28,3 percent of the country’s total exports in 2018.
But despite all the local hype about Zimbabwe’s gold, a global comparative shows that the country is still a small player internationally.
In 2018 Zimbabwe exported gold valued at $1,14 billion, accounting for only 0,4 percent of total global gold exports that year, data from Trade Map shows.
And that figure could be lower for 2019, as the local gold sector faced significant challenges during the period under review.
According to figures from the Reserve Bank of Zimbabwe, as of June 2019, the country’s gold exports had declined by 31,3 percent compared to prior year comparable.
Analysts at local research firm Morgan & Co say there are too many problems weighing on the gold sector in Zimbabwe to see it benefiting from higher gold prices.
“Despite firm gold prices, the broader macroeconomic challenges rampant in Zimbabwe are expected to outweigh the benefits of a stronger gold price.
“The Economic Intelligence Unit estimates that Gross Domestic Product (GDP) will contract by 12,9 percent in 2020 underpinned by a consecutive drought that has affected agriculture and hydro-energy output as well as liquidity and currency crises perpetuating supply and demand constraints in the country.
“We also note that gold output was below the 2019 target pf 35 tonnes after long power cuts and foreign currency limitations affected the commercial mining sector’s gold deliveries to Fidelity Printers and Refiners.”
Zimbabwe’s gold mining sector has been weighed down by a plethora of problems ranging from power outages to foreign currency shortages, power outages, an increase in informal gold production (resulting in increased gold smuggling) and a generally high cost of production.
Although in the 2020 National Budget, Government committed to “reviewing and tightening the Gold Trade Act, and capacitating the Gold Mobilisation Unit”, specifically to cater to the problem of smuggling, these measures — if and when effected — are not likely to have the quick impacts to have a significant impact on output this year.