Zim misses out on gold price boom
Last year, gold had its best price performance since 2010, rising by 18,4 percent in US dollar terms.
It outperformed major global bonds and emerging market stock benchmarks over that period.
It also reached record highs in most major currencies except the US dollar and the Swiss franc.
Gold rose mostly between early June and early September last year as uncertainty increased and interest rates fell.
Investors’ appetite for gold was apparent throughout the year, as seen by strong Exchange Traded Fund flows, and robust central bank demand.
However, Zimbabwe is likely to have missed this boom after gold deliveries slumped 16,8 percent in 2019 to 27,7 tonnes due to a number of reasons including smuggling and subdued performance by big producers.
Once again, small scale miners produced the bulk of the metal, accounting for about 63 percent of output or 17,4 tonnes against big producers, which delivered 10,1 tonnes.
While the value of gold delivered to Fidelity Printers and Refiners is about US$1,3 billion, a significant amount was sold through the black market depriving the country of the much-needed forex.
“There is need to re-organise the sector from the production and marketing perspective,” said Noah Remba, a mining consultant based in Harare.
“Given that the country is losing a lot through smuggling, there is need to plug the loopholes.”
Disturbances happening in the small scale gold mining sector, where armed and organised crime gangs are wreaking havoc, invading mines and robbing people of gold could also further contribute to decline of deliveries from the sector already affected by smuggling.
Gold mining and deliveries in Zimbabwe have also suffered due to concerns among the miners, who cite it as the motivation to smuggle, due to the 55 percent forex retention threshold.
The miners get 55 percent of their deliveries to Fidelity Printers and Refineries in hard currency and the balance is paid out in local currency, with the forex going to meet critical national requirements.
With Zimbabwe becoming increasingly import-dependent, dealing with issues that are weighing down production and deliveries becomes paramount for the country not to miss out on the price boom.
Positive outlook
In its latest report, the World Gold Council (WGC) believes global dynamics seeded over the past few years will generally be supportive for gold this year.
“In particular, we believe that financial and geopolitical uncertainty combined with flow interest rates will likely bolster gold investment demand,” said World Gold Council.
“Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters.
“Momentum and speculative positioning may keep gold price volatility elevated. And that gold price volatility, as well as expectations of weaker economic growth, may result in softer consumer demand near term but structural economic reforms in India and China will support demand.”
One of the key drivers of gold, especially in the short and medium term, is the opportunity cost of holding it relative to other assets, such as short-dated bonds, the report said.
Unlike bonds, gold does not pay interest or dividends because it does not have credit risk.
This perceived lack of yield can deter some investors. But in an environment where a whopping 90 percent of developed market sovereign debt is trading with negative real rates, World Gold Council believes the opportunity cost of gold almost goes away.
“It may even provide what can be seen as a positive “cost of carry” relative to bonds.”
Smuggling syndicates
Zimbabwe earns much of its foreign currency from mining, with gold being the major contributor, but the sector is facing a myriad of challenges including power cuts, which have seen large scale producers struggling. The prevailing foreign currency shortages have also hobbled imports of spare parts and consumables.
On the other hand, a significant amount of gold is being sold through the informal channels to illegal buyers who them smuggle the mineral outside the country.
Gold worth billions of dollars is being smuggled out of Zimbabwe every year through neighbouring countries used as a gateway to overseas markets. Illegal gold trading is being run by a smuggling ring controlled by foreign criminal syndicates, mainly from Asia and the Middle East who are disposing of their US dollar for gold.
They are understood to be working with influential individuals.
Authorities estimate gold being sold through shadowy channels could be around 100 tonnes.
The black-market trade in gold is being largely driven by informal miners — commonly known as artisanal miners who prefer to sell their metal to illegal buyers who then fly the gold out directly or take it out it through Zimbabwe’s porous borders.
Business Weekly