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Strengthening rand to shift picture on gold in South Africa

BMI Research’s Country Risk team have changed their forecasts on South Africa and now expect further strength in the rand over the coming months, despite remaining relatively pessimistic on the country’s macroeconomic fundamentals.

 BMI Research is a unit of the Fitch Group.

This change in view is mainly predicated on a more supportive technical picture which indicates that the rand remains significantly weaker than a long-term line of resistance to which the currency usually returns to following significant selloffs .

The Country Risk Team now forecasts a year-end exchange rate of ZAR10.9/US$, up from a previous forecast of ZAR11.6/US$.


BMI’s optimistic outlook for the rand will shift our existing positive view on South African gold miners over the coming years.

In previous analysis, BMI outlined how rand weakness would aid South African gold miners’ currency-adjusted earnings over 2018-2021, despite the short-term boost to
the currency prompted by Cyril Ramaphosa‘s election as new ANC leader and President of South Africa.

However, the renewed likelihood of a strengthening rand will mean that the negative impact on domestic gold miners earnings witnessed over 2017, will continue throughout 2018 and into 2019.

What’s next?

While a strengthening rand will continue to erode profitability for gold miners ahead, there are upside elements that may mitigate the overall effect of lower currency-adjusted earnings in the coming quarters .

First, BMI continues to be positive on gold prices, which we forecast to average
$1,300/oz this year and $1,325/oz in 2019, up from $1,259/oz last year.

Secondly, South African President Ramaphosa’s announcement earlier this month that he intends to open a negotiation with the mining industry on last year’s much-criticized new mining charter – in order to reach a deal that is acceptable for all stakeholders – will significantly improve investor sentiment surrounding the domestic mining industry.