As expected, gold came under pressure as the US Federal Reserve (the Fed) raised interest rates for the first time in nearly a decade. The gold price closed the quarter at US$1 060 an ounce, a 5% decline on the previous quarter. Escalating political tension in the Middle East and elsewhere will provide some support for investment demand. While a stronger US dollar may continue to weigh on investment demand, it is likely that the downward pressure on gold will ease as markets digest the Fed’s "lift-off". Medium- to long-term fundamentals are still positive. Central banks remain buyers and low prices will attract consumer demand for jewellery and coins. Producers have cut exploration and expansion capital expenditure in response to a prolonged period of depressed prices, which will create a supply crunch in two to three years’ time.

A weaker rand resulted in a record level rand gold price. As a result, the FTSE/JSE Gold Mining Index climbed by 13.2% this quarter. However, it fell 7% for the full year. Harmony Gold and Sibanye Gold have the biggest exposure to the rand and rose by 81% and 46%, respectively. Gold Fields rose by 17%, while AngloGold fell 3%. AngloGold and Randgold Resources announced that their proposed joint venture at Obuasi mine in Ghana would not proceed. We see this as a setback as Randgold Resources has a proven track record in West Africa and would have added value to operations at the underperforming mine. However, a delay in the turnaround at Obuasi does not negate the investment case for AngloGold.

Sibanye Gold and AngloGold are our preferred picks in the sector. AngloGold has a diverse portfolio and an improving balance sheet. Sibanye Gold offers a superior dividend yield and is poised to enjoy positive leverage to the platinum group metal (PGM) basket price, which is at a cyclical low. The key risk that Sibanye faces is strike action as AMCU pursues legal action following failed wage talks.

The fund changed sectors from South African--Equity--Resource to Worldwide--Equity--Unclassified with effect from 01 Dec 2015