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Johannesburg - The Gold index on the JSE jumped by a massive 16% on Thursday morning as the dollar fell back, releasing its stranglehold on commodities. Some gold shares gained more than 25%.
The gold price lifted from its five-year lows and by midday on Thursday traded more than $4 higher at $1 075.00. Analysts said a softer dollar will make gold more affordable for buyers in other currencies. Higher interest rates could also boost gold's appeal as a hedge against inflation.
The impact on gold shares was dramatic. By midday the Gold index was 15.95% higher at 969 points, more than 100 points higher than the previous day’s close of 865 points.
Other commodities also benefited moderately form the softer dollar and by midday the resources sector was 4.05% higher. That pulled the rest of the market higher and the All-share index at midday was 1.2% stronger at 52 272 points, with the Top 40 index back above 47 000 points trading 1.16% stronger at 47 005 points.
The latest minutes of the US Federal Reserve released on Wednesday gave one of the strongest indications yet that the American central bank will start raising interest rates in December, but the dollar did not strengthen further on the news as it has in the past.
Analysts said that markets were encouraged by indications that the Fed will proceed with great caution on further tightening after the initial hike. Fed officials also expressed confidence that the increase could be achieved without disrupting the markets.
Imara SP Reid said in its daily Market Snapshot on Thursday that the strong indication in the Fed’s minutes has given certainty to the markets. It seems such a move has mostly been discounted by the dollar and investors started to take profit as the dollar is currently on a seven-month high.
Gold Fields [JSE:GFI] was the star performer among gold stocks and by midday traded 25.13% higher at R38.79. Before Thursday’s jump the share had lost 40% of its value in the year to date, closing on a 52-week low of R31.00 on Wednesday.
AngloGold Ashanti [JSE:AGL] also gained 13.11% to R103.99. The share was far more stable than the rest of the sector and only lost 9.6% for the year to date. Harmony [JSE:HAR], which has lost more 60% in the year so far, gained 7.53% to R91.4 on Thursday morning. Sibanye [JSE:SGL] was 7.99% higher at R19.06.
Other commodities also benefited moderately form the softer dollar and the resources sector was 4.05% higher at midday on Thursday. That pulled the rest of the market higher and the All-share index at midday was 1.2% stronger at 52 272 points, with the Top 40 index back above 47 000 points trading 1.16% stronger at 47 005 points.
Imara SP Reid said in its Market Snapshot that the resources sector, which is remarkably oversold, currently exhibits the first potential evidence of short-term support. A technical rebound is the most likely outcome, with the sector targeting 30 000 points as a realistic near-term target. By midday the index was at 29 299 points. It started the year at 41 773 points.
Platinum shares were among the strongest performers and Anglo American Platinum [JSE:AMS] gained strongly for the second consecutive day, trading 8.16% higher at R200.10. Impala Platinum [JSE:IMP] was 3.84% higher at R32.43.
Anglo American [JSE:AGL] traded above R100 per share again by midday after it gained 3.78% to R100.82, and BHP Billiton [JSE:BIL] was 2.56% stronger at R196.92. Sasol [JSE:SOL] continued its strong run this week and gained another 3.11% to R411.00.
The financial sector rose 1.64% to 16 271 points, and Imara SP Reid said the level of 16 000 is providing some support.
Banking shares in particular are currently fairly oversold. FirstRand [JSE:FSR] was the busiest share and rose 1% to R48.48.
The two biggest shares in the industrial sector (and the JSE) were both higher, which lifted the Industrial index 0.73% up. British American Tobacco [JSE:BTI] gained 1.22% to reach a new all-time high of R831.00, and SABMiller [JSE:SAB] was 0.28% higher at R866.56. Naspers [JSE:NPN] however lost 0.61% to R2 160.75.
Tiger Brands [JSE:TBS] gained 1.9% to R331.50, despite the fact that earnings declined by 1% and the company warned of deteriorating business conditions in South Africa. The market was encouraged by the news that Tiger Brands wrote down the full value of its Nigerian milling units. The value of these units were impaired by $1.9bn.
