On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.
In our Confidential Report of March 2024, we pointed out to you that the US dollar price of gold had broken above resistance at $2060 and was headed into a strong new upward trend.
The question arises, “How could private investors best benefit from this rising gold price?”
There were and are basically two options:
- Buy bullion in the form of Krugerrands or a gold ETF.
- Buy shares in a listed gold-producing company.
Obviously, investing in shares is far more risky than buying gold bullion – but then it is also commensurately more profitable.
On 25th March 2024 we published an article in which we discussed the performance of Harmony (JO:HARJ) shares on the JSE. We noted at the time that, since we added Harmony to the Winning Shares List (WSL) on 16th November 2023, it had risen 43,97% in just 4 months. Since that article, Harmony has continued to perform very well and closed on Friday at 22330c – giving it a gain to date of 122,8% since we added it to the WSL.
Over the same time period, the price of a Krugerrand has risen from R39 000 to R52 000 – a gain of 33,3%. You should also note owning Krugerrands does not pay any return. There are no dividends – just a capital gain. Harmony, by contrast, paid out a dividend of 75c per share in 2023, and 241c in 2024 and is on track to pay an even higher dividend in its 2025 financial year. Consider the chart:
Chart by ShareFriend Pro.
The chart shows that since our article, Harmony’s shares have been in what technical analysts call a “broadening formation”. The share price has been oscillating between a support price of around 15000c and a rising upper trendline. If it breaks significantly above that upper trendline – which it looks set to do – then it could enter a period of even stronger growth.
Of course, gold mining is a very volatile and potentially highly risky venture – much more risky than just holding a few Krugerrands. Harmony has the dubious distinction of operating the world’s deepest mine – Mponeng. This mine, bought from AngloGold for R4,2bn in 2020 is operating at close to 4000 meters below the surface. At that depth, the rock temperature is 66 degrees Celsius.
To bring that down to a bearable 30 degrees, the mine runs one of the world's largest crushed ice plants. Crushed ice is pumped down to the bottom of the shaft where it melts and cools the shaft and then it is pumped back up to the surface, re-frozen, and pumped down again in an endless process that continues 24 hours a day 365 days a year. The benefit is that, at those great depths, the grade of recovered ore is very high and hence very profitable – high risk, high return.
So holding Harmony as an investment is many times as profitable as holding Krugerrands, but it is also many times more risky. The international price of gold is volatile and a function of many complex factors – such as the outcome of the war in Ukraine and the prospect of a lasting peace in the Middle East. Harmony is a price-taker – not a price-maker, but right now the price is high and rising.