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A large measure of divergence in the performance of global currencies against the US dollar was evident in March, clearly as a result of key US economic data sets sending out conflicting signals – a trend that has continued to baffle capital markets over the past two years.
During March, the spread between the best and worst performers against the greenback in the Currencies Direct sample of key global currencies amounted to 650 basis points, compared to only 390 basis points in February. The rand’s depreciation of 2.8% in February was overturned into a gain of 1.7% - making it the second-best performer in March.
Inflation in the US moderated in February, but the unemployment rate in the US has risen to 3.9% - its highest in two years, which keeps a June interest rate cut by the Fed firmly on the table. According to a Bloomberg report, this has already been priced into interest rate futures. Combined with a stronger rand, this may force the Reserve Bank’s hand with a domestic interest rate cut in May.
During March, Statistics SA published the GDP figures for 2023, confirming that economic growth remains intact, albeit at a sub-optimal level. The year-on-year real growth rate for the country’s GDP amounted to 1.2% in the 4th quarter of 2023, following a decline of 0.7% in the 3rd quarter.
For 2023 as a whole, the economy managed to grow at 0.6% in real terms. The economy has now grown at real positive rates for ten of the past eleven quarters and will hopefully start to gain some traction during 2024, especially as a result of an imminent relaxation of restrictive monetary policy and government’s declared intention of closer cooperation with the private sector in solving problems associated with energy and transport logistics.
The GDP data reflected some good news for a number of key sectors of the economy that managed to increase their profitability during 2023, with manufacturing, trade & catering, electricity, and construction recording double-digit growth rates for their gross operating surpluses.
March witnessed a relentless rise in the gold price, with the precious metal breaking new records on a regular basis to reach an all-time high of $2,265 per fine ounce, before pulling back slightly. The futures market price quoted on 2 April by Investing.com was even higher, namely $2,280 per fine ounce (for delivery in June 2024).
Traditionally, an inverse relationship exists between US interest rates and the gold price, which is at play again, with the yield on 10-year US government bonds having dropped by 67 basis points since mid-October last year.
Another reason for the surge in the gold price is heightened geo-political tensions in various parts of the world, and indications that the wars in Ukraine and the Middle East may be prolonged beyond 2024.
A third reason is the sharp increase during the latter part of 2023 in global central bank purchases of gold, as these institutions start diversifying away from forex assets.
In these circumstances and with an easing of monetary policy in the US firmly on the cards, gold’s status as a safe investment haven is starting to pay dividends, which will boost mining sector profits in South Africa.
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