African Mining February 2021 | Page 33

FINANCE FORUM •
Freepik

SHEER VOLATILITY THE ONLY PREDICABLE

While no two cycles are the same , the one thing that stands out in this cycle is the sheer volatility , writes Avinash Kalkerpersad and Arnold van Graan .

During the past year there have been massive moves

daily , not just weekly or monthly , which leaves analysts confused as to whether we are up or down . Another thing that stands out is the breakdown in several long-term metrics that are usually tracked .
There are certain factors that drive the metal price , but over the last few months , these seem to have fallen by the wayside . What is reflected in the market and on the ticker , boards are not necessarily a reflection of what is happening in the fundamentals , which is challenging .
So , what is really driving this market ? What are the factors one should look at to really understand where this is going and what will the new norms look like ? This is quite challenging , but the cycle has been good to the sector with most resources going up sharply , gold being the standard – and that is key . It is the breakdown of fundamentals and the volatility that are the real challenges in this sector .
Towards the latter part of 2020 gold saw a 100 % return , year-todate compared to the All Share Index at -1 %. The resource sector was up 18 %, which includes platinum , up by 13 %. This indicates good performance . On a one-year basis , resources were up 34 %, platinum was up 100 %, gold was up by 140 % and the All Share Index was up only 4 %. Looking at it on a five-year basis is where the excitement around gold really is , with it being projected to go up by 580 %, platinum up to 250 % and resources in general up 75 % compared to the All-Share index going up only 12 %.
This is the wonder of resources and mining . When you think it is down and out , you get a bull market . The uniqueness of this sector is that a big reset can occur and make up everything you have lost in the past few years within a few months .
The direction of this rally will be determined by two things – one being the outcome of Covid-19 , the other being how much money central banks and governments will invest into the financial systems to boost the economy . These will be key drivers of commodity prices and their trajectory , gold included .
There are two important drivers of demand , one being China and the other being stimulus , and these are interlinked . Most of the metals produced both in South Africa and globally are consumed
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