Wednesday, 20 April 2011 - 20:00
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Inflation and the long term gold price
In previous months, inflation data has tended to surprise on the downside. I.e. monthly inflation has come in lower than analyst’s expectations. Today it was slightly higher than the consensus forecast. In March inflation rose by 1,2% against an expectation of 1%, and for the 12 months it rose 4,1% against a 4% consensus.
This inflation data had very little to no impact on either the equity market or the bond market.
The bond market break even inflation is running at around 6%. i.e. nominal bonds are pricing in inflation at the top end of the Reserve Bank’s inflation target. i.e. they are expecting a rise in inflation and interest rates to start being hiked later this year or beginning of 2012
Over 30 years, inflation in South Africa has run at just less than 10% per annum.
Gold bullion has continued to move up to new highs in most currency terms. Gold is quoted in US dollars. The price has now moved through the $1500/oz level.
The chart below reflects that although the rand is firm against the US dollar, in rand terms the price is now at R10190/oz. Against a backdrop of ongoing monetary stimulus, in general a lack of real interest rates, high inflationary expectations and downgrades to US debt outlook, the demand for gold has kept the price moving up steadily, especially over the last 10 years.
Looking back into history - gold in March 1971 traded at $38,87/oz and R27,65/oz. Over the 40 years the compounded growth in rands has been 15,9% to its current level. Over 30 years from near its peak the annual compounded return reduces to 11,45%.
If inflation was running at 10% over the last 30 years, then gold from its higher prices in early 1980’s has achieved annualised returns of only slightly ahead of inflation.
But over the last 10 years from its lower levels, gold, both in rand terms and in dollar terms has moved up very strongly.
With commodity assets becoming more common among investors as a means of achieving portfolio diversification, commodity assets under management have more than doubled between 2008 and 2010 to nearly US$380 billion - according to a recent World Gold Council report.
Gold is still relatively small in most commodity indices from 3% in the S&P Goldman Sachs Commodity Index to 7% in the Dow Jones UBS Commodity Index.
It is estimated that 168,300 tonnes of gold have been mined over the course of human history. 50% of this exists in the form of jewellery. Gold used in technology and dentistry and other fabrication accounts for 12%. Gold held in investments and official holdings (financial or investable) represent 36% of all above ground gold, or approximately 60,400 tonnes of gold.
Using the 2010 average price of $1224/oz, the size of financial gold holdings is equivalent to $2,4 trillion. The report puts this into context saying that this is larger than any single European sovereign debt market. But it does not represent any countries’ liability.
Total above ground stocks of gold in tonnes as of 2010
Naturally now one knows where this price can move to. Longer term the returns from gold should be ahead of inflation, but probably behind that of more riskier investments such as equities.
In a diversified portfolio we would advocate holding a portion of gold, and in the Seed Flexible Fund we have continued to hold a small allocation of just less than 5%.
Ian de Lange
021 9144 966
Wed, 20 Apr 2011
Strong profits and outlooks
from tech and manufacturing companies propelled U.S. stocks
higher on Wednesday, delivering the biggest lift to sentiment
since quarterly earnings. . .
Upbeat earnings and outlooks
from companies including chipmaker Intel lifted global stocks
and fueled risk appetite on Wednesday, driving commodities
higher and the Australian. . .
Commodity stocks helped power
Britain's top share index sharply higher on Wednesday, while
earnings from Reckitt Benckiser and Home Retail, following U.S.
tech bellwether. . .
Gold rose above $1,500 an ounce
on Wednesday for the first time ever as the dollar wilted, oil
rose, worries over the U.S.. . .
At the forty-sixth annual general meeting of the shareholders of Zurich held on 20 April 2011, all the ordinary and special. . .
Shareholders are advised that EcoLife, the joint venture between Econet Wireless Zimbabwe, First Mutual Life Zimbabwe and Trustco Mobile ("Trustco Mobile"),. . .
Further to the cautionary announcement dated Monday, 24 January 2011, and the further cautionary announcement dated 8 March 2011, shareholders are. . .
Shareholders are referred to the cautionary announcements dated 18 May 2010, 3 June 2010, 3 August 2010, 27 October 2010, 7. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||29337.05||705.68||2.46%|
|JSE Indust 25||17:00||27222.76||696.12||2.62%|
|Rand / Dollar||19:58||6.7977||-0.0175||-0.26%|
|Rand / Pound||19:55||11.1151||0.0035||0.03%|
|Rand / Euro||19:55||9.8612||0.0849||0.87%|
|Rand / NZD||19:57||5.4078||0.0356||0.66%|
|Rand / AUD||19:55||7.2567||0.0812||1.13%|
|Yen / Dollar||19:58||82.4100||-0.1400||-0.17%|
|Euro / Dollar||19:55||0.6891||-0.0084||-1.20%|
|Dollar / Euro||19:58||1.4502||0.0172||1.20%|
|Pound / Dollar||19:55||0.6096||-0.0030||-0.49%|
Click here for the Sharenet Spot Price page
The JSE Today
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||30,480.56||741.79||2.49%|
|Oil & Gas ||28,412.18||626.88||2.26%|
|Oil & Gas Producers ||15,276.70||337.06||2.26%|
|Basic Materials ||32,076.59||730.75||2.33%|
|Forestry & Paper ||14,158.81||165.01||1.18%|
|Industrial Metals ||30,133.51||393.79||1.32%|
|General Industrials ||76,055.33||2027.11||2.74%|
|Consumer Goods ||26,912.46||381.84||1.44%|
|Automobiles & Parts ||3,090.99||33.97||1.11%|
|Health Care ||31,350.13||58.90||0.19%|
|Food Producers ||47,466.72||559.38||1.19%|
|Index Name||RP||Move||% Move|
|Personal Goods ||413.19||14.68||3.68%|
|Consumer Services ||53,418.47||1626.20||3.14%|
|General Retailers ||41,100.35||429.06||1.05%|
|Travel & Leisure ||3,673.97||46.35||1.28%|
|Support Services ||2,417.95||7.88||0.33%|
|Non-life Insurance ||29,850.63||-1066.96||-3.45%|
|Life Insurance ||16,094.71||53.76||0.34%|
|General Financial ||2,237.52||27.44||1.24%|
|SHARIAH TOP40 ||3,320.60||86||2.66%|
|FTSE/JSE SHARIAH ALL||3,368.62||80||2.44%|
|FTSE JSE Fledgling ||4,446.46||-44||-0.98%|
|FTSE/JSE Alt X ||999.56||0||0.03%|
|SA LISTED PROPERTY ||371.15||0.08%|
|CAPPED PROPERTY ||310.11||-0.12%|
|FTSE/JSE RAFI 40||6,785.24||149||2.24%|
|Capped Top 40||15,240.11||371||2.49%|
|Capped All Share||16,341.69||346||2.17%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|NED||NEDBANK GROUP LTD||SELL||15 Apr|
|FSR||FIRSTRAND LIMITED||BUY||15 Apr|
|AIP||ADCOCK INGRAM HLGS LD||HOLD||15 Apr|
|LHC||LIFE HEALTHCARE GRP HLDG ...||BUY||15 Apr|
|EQS||EQSTRA HOLDINGS LTD||HOLD||15 Apr||
|Expected||Company Name||Fin. Date|
|21 Apr 2011||IQUAD||February 2011 (Final)|
|21 Apr 2011||PLATFIELD||February 2011 (Final)|
|21 Apr 2011||REDEFINTL||February 2011 (Interim)|
|22 Apr 2011||AFEAGLE||December 2010 (Final)|
|22 Apr 2011||OANDO||December 2010 (Final)|
|NTC PREF||11-04-01||11-04-19||11-05-03||R 3.4161|
|NAIL -N-||11-04-05||11-04-19||11-05-03||R 0.1760|
|ZSA||Zurich Insurance Company South Africa Lt...||20/04/2011||Confirmed|
|FCO||Foord Compass Ltd||21/04/2011||Unconfirmed|
|FCCP||Foord Compass Ltd||21/04/2011||Unconfirmed|
|ASA||Absa Group Ltd||21/04/2011||Confirmed|
|FCPD||Foord Compass Ltd||21/04/2011||Unconfirmed||
Stock Exchange News Service
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