An index of gold stocks in Johannesburg rose as much a 2.7% to a fresh all-time high on Monday, as bullion prices look set to take out the record reached in 2011, amid loose monetary policy, low real yields, record inflows into exchange-traded funds and increased asset allocation.
“JSE-listed gold shares’ performance is a function of the gold price in rands, so dollar gold price and rand exchange rate are both important,” said Meryl Pick, a money manager as Old Mutual Investment Group, who helps oversee the firm’s 10 billion rand ($533 million) Investors Fund.
The rand price of gold has risen for a third day. The index of gold companies is up 103% in 2020, accounting for the five best-performing members of the South African benchmark index.
The gauge’s 14-day relative strength index rises to 76.7, above the level of 70 that some technical analysts see as an indication that the shares have risen too far and are overbought. But the stocks could have further to run.
“Gold stocks are ultimately leveraged to the gold price and will track this higher in a rising gold price environment,” Pick said.
“Based on a 2-3 year view, the gold price could still find support as central banks will likely keep interest rates at all-time lows to support a global recovery, and we have entered levels of unprecedented money creation by the U.S. Federal reserve, which may have knock-on effects on inflation.”