The quarter ending 30 September 2010 turned out to be a stellar period for the platinum group metals (PGMs), particularly palladium which went up by almost 30%. Platinum increased by about 10% while rhodium had a negative 8% return during the period in review. The yellow metal, which broke records in the month of September by breaching US$1 300/oz, only increased 5% during the quarter. However, the strength of the rand took all that shine away, with the exception of palladium. When the precious metal prices are looked at in local currency terms, platinum is down 2%, palladium is up 18%, rhodium is down 16% and gold is down 4%. The rand appreciated by 10% against the dollar during the quarter.

The weaker rand metal prices were reflected in the performance of the shares. The FTSE/JSE Gold Index (J150) declined by 1%, with both AngloGold Ashanti (ANG) and Harmony (HAR) falling, 3% and 4% respectively. Gold Fields (GFI) enjoyed positive performance of 2%. The Platinum Index (J153) was down 3%, although Lonmin put in a sterling 15% performance. The quarter featured news of AngloGold Ashanti raising money, through an equity issue and a convertible bond, to close out its hedge book. Once the hedge book is completely eradicated the company stands to benefit from better margins and better cash flows to the tune of about US$500m, depending on where the gold price is and if it remains at these high levels.

The second quarter of the year saw gold break out of the range-bound trading it experienced during the first quarter, and it rose 12% in dollar terms and 16% in rand terms. The yellow metal started April 2010 at $1 112/oz (R262 267/kg) and closed above $1 240/oz (R305 289/kg) at the end of June. Gold's performance was driven by investment demand as reflected by increases in holdings of exchange traded funds (ETFs). Global ETF holdings increased by 15%. What has been feeding the investors' appetite for the precious metal have been fears about the impact of a weak Euro-zone on global growth, and also some disappointing numbers out of China and the US. However, a beneficiary of the fear factor was the US dollar, which strengthened by 10% against the euro during the quarter. The fears of a global slowdown are well reflected by lower platinum group metal (PGM) prices. Platinum and palladium both fell by 7% during the quarter, while rhodium lost 4%.

The FTSE/JSE Gold Index outperformed the rand gold price by over 7% during the last four months to June. The best performer amongst the major gold producers was AngloGold Ashanti (ANG) with a return of 19% between April and June. Harmony (HAR) had an 18% return while Gold Fields (GFI) was a rather distant 12%.

The first quarter of the year was a poor one for the gold companies as reflected by the FTSE/JSE Gold Index (J150) performance of -8.5%. The three gold majors were all sitting at the bottom of the FTSE/JSE Top 40 Index performance log table. AngloGold Ashanti [ANG] had the worst performance (-9.25%), with Harmony [HAR] not too far behind at -9.22%. Gold Fields [GFI] had a better return of -6%. Of the smaller shares, DRD Gold [DRD], Pan African Gold [PAN] and Simmers & Jack [SIM] lost almost 30% of their values. The dollar metal price (and also the rand price) increased by 2%, but oscillated within a narrow range of $1 050/oz and $1 150/oz. There was little impetus for the price to rise any higher as the dollar strengthened against the euro by almost 6%. Investment demand for gold was rather subdued as exchange traded funds' volumes increased by 103 000oz on a total holding of almost 58 million ounces. In fact, January and February had net outflows and March experienced a strong net inflow of gold. We believe that gold at these levels is fairly priced and it would need a cataclysmic event, or another rapid pickup in cost inflation for prices, to move by a large margin. The companies have just closed another production quarter which was spoiled by the Christmas break. Harmony has already warned that it experienced a drop in production of between 1 000kg and 1 300kg. Most of that loss, however, is attributed to more shaft closures during the quarter. It will be interesting to see if Harmony management will still maintain the same target of 400 000 ounces of gold per quarter, after having closed shafts two quarters in a row. Gold Fields reiterated its 800 000 ounces target but unit costs seem to be on the rise. Overall, the gold companies need a much stronger gold price or they will have to shut down marginal shafts.

The last quarter of 2009 was characterised by strong metal prices, a firm rand and rather disappointing performance from the South African (SA) gold majors. Rhodium and palladium led the pack, rising 51% and 34%, to end the year at $2 500/oz and $393/oz respectively. Platinum rose 13% during the three months to $1 470/oz. Gold was up 9% in dollar terms for the quarter, but dropped 7% during the month of December, ending the year at $1 090/oz. The rand maintained its strong form, gaining close to 2% on the dollar during the period in review. The rand gold price opened the quarter at R239 500/kg, peaked at R285 000/kg, and ended December 2009 at R258 505/kg.

The drop-off in the gold price towards the end of the year dragged the gold shares down, which is reflected in the FTSE/JSE Gold Index (J150) returning -1% for the quarter and -11% during the month of December. During the quarter, the laggard of the SA gold majors was Harmony (HAR), -5%, followed by Gold Fields (GFI), -3%. AngloGold Ashanti (ANG) eked out a positive 2% return. The shares were weighed down by the threat of an exorbitant Eskom tariff hike which would have put most of SA mines under water.

2010 has started on a very positive note, especially for platinum group metals, with platinum and palladium returning to levels last seen in August 2008. These metals have risen on the back of investor demand as the prospects of a global economic recovery become more entrenched. The US recently launched exchange traded funds (ETFs) for platinum and palladium, and this created some excitement around prices. Gold has followed suit, making another lurch towards $1 200/oz. Inflation concerns and a weaker dollar are driving this move.