Gold Dive ‘Extremely Concerning,’ S. Africa’s Marcus Says

The biggest drop in gold prices since 1983 is “extremely concerning” and reflects the uncertain outlook for the global economy, South African Reserve Bank Governor Gill Marcus said.

The central bank will continue to accumulate bullion as part of its reserves and won’t adjust its policy, Marcus told reporters in Cape Town today. Gold dropped 14 percent in the two days through yesterday.

The decline is “a reflection of the uncertainty in the global environment,” she said.

The central bank has been buying foreign currency and gold reserves to protect against swings in the rand, the most volatile of the 16 major currencies tracked by Bloomberg. The world’s central banks hold about 19 percent of all bullion ever mined and boosted holdings of the metal last year by the most since 1964.

South Africa’s gold and foreign currency reserves dropped 0.7 percent to $50 billion in March, according to the Reserve Bank. Gold holdings rose 0.8 percent from a month earlier to $6.45 billion.

“We already hold a significant level of gold in our reserves and would continue to do so,” Marcus said. “We have been a country that encourages gold as part of reserve holdings. It’s been quite volatile. It’s certainly very significantly higher than it was a few years ago, even at these levels.”

Labor Unrest

AngloGold Ashanti Ltd. and Sibanye Gold Ltd. have operations in South Africa, the world’s fifth-biggest gold producer. Even before metal prices slumped, mining companies in the country had to contend with months of labor unrest and rising wage and electricity costs.

“Our mining sector is under pressure, there is no question,” Marcus said. “The big factor has been the labor relations over the last few months.”

The mine disruptions have weighed on growth in Africa’s largest economy and undermined government efforts to cut a 25 percent unemployment rate. The central bank last month kept interest rates at their lowest level in more than 30 years to buoy consumer spending, even as a weaker rand caused inflation to accelerate to near the top of its 3 percent to 6 percent target band.

The inflation rate climbed to 6 percent in March, according to the median estimate of 20 economists surveyed by Bloomberg. Statistics South Africa is scheduled to release the data tomorrow.

Weaker Rand

“You’ve got slowing growth and rising inflation,” Marcus said. “It’s not a place you want to be in. The challenge for us is how do we improve growth and how do we look at containing inflation in a better way. At the moment, you are affected by a depreciating currency.”

The rand has slumped 7.4 percent against the dollar this year, the second-worst performer of 16 major currencies tracked by Bloomberg. It gained 0.6 percent to 9.1456 per dollar at 2:30 p.m. in Johannesburg, after weakening 2.9 percent yesterday.

“The rand tends to trace back,” Marcus said. “A lot of this is related to global issues, not just domestic issues.”

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