The gold price ended the quarter at US$1 242 per ounce, having declined only 0.6% since the close of the first quarter despite the US Federal Reserve raising rates for the second time in 2017. The US dollar weakened towards the end of the quarter as doubts prevailed about the extent to which the Trump administration could spur further US growth. Gold price appreciation is likely to continue for the remainder of 2017 as markets anticipate further action from the US Federal Open Market Committee. Physical demand from jewellery, coins and bars continues to provide a price floor, given increasing demand at lower prices.

The Old Mutual Gold Fund has a composite benchmark weighted 70% to the FTSE/JSE Gold Mining Index and 30% to the FTSE Gold Mines Index, which is comprised of global gold stocks. The FTSE/JSE Gold Mining Index fell 12.3% over the past quarter, while the FTSE Gold Mines Index fell 7% in rand terms. Gold Fields, PAN African Resources and AngloGold Ashanti were the strongest performers on the local front this quarter, rising 10%, 3% and 2%, respectively. On the international front, the relative outperformers were Kinross Gold and Agnico-Eagle Mines. The fund holds shares in all except for Kinross.

Late in the second quarter the Mining Minister revealed the latest iteration of the South African mining charter, in the absence of consultation with mining companies, it would seem. It appears likely that the charter will be challenged in court by the sector, ushering in a further period of uncertainty for South African mining. This is likely to weigh on companies with great levels of exposure to local mining, such as Harmony Gold and Sibanye Gold. AngloGold Ashanti remains the fund's largest holding, followed by Randgold Resources. AngloGold has a globally diverse portfolio consisting of low cost operations, with the exception of South African assets. The company has recently announced plans to put selected unprofitable South African operations under care and maintenance to save costs. Given the deteriorating outlook for South African mining, it is probable that discussions will resume about splitting South African assets from the group. This could unlock value under the right conditions. Randgold Resources continues to offer a superior combination of successful exploration programmes, proven project ramp-up capabilities, a strict investment framework for new projects and a strong balance sheet.

The gold price ended the quarter at US$1 245 an ounce, having risen 8.6% since the close of 2016, driven by a weaker US dollar. The US dollar strengthened leading up to the US Federal Open Market Committee (FOMC) rate hike in March, but weakened after the event. Research shows that this pattern has played itself out over several rating cycles in the past and this cycle has not proven any different so far. The US dollar continued to lose ground towards the end of the quarter as doubts began to creep in about the scale and speed with which the Trump administration could implement reforms in the US economy. Gold price appreciation is likely to remain constrained in the short term as markets anticipate further action from the FOMC. Physical demand for jewellery, coins and bars will provide support at lower prices.

The Old Mutual Gold Fund has a composite benchmark weighted 70% to the FTSE/JSE Gold Mining Index and 30% to the FTSE Gold Mines Index, which is comprised of global gold stocks. The FTSE/JSE Gold Mining Index rose 2.4% over the past quarter, while the FTSE Gold Mines Index rose 6.3% in rand terms.

Sibanye Gold and Gold Fields were the strongest performers on the local front during the quarter, rising 13% and 7.3%, respectively. Sibanye Gold was coming off depressed levels having underperformed late last year on the news of their acquisition of Stillwater Mining Company. Gold Fields outperformed as it gave investors a revised ramp-up plan for its South Deep mine in South Africa after a prolonged period of design and operational review. On the international front, the relative outperformers were Centamin and Acacia Mining. The fund holds shares in all four.

Sibanye Gold has to execute a sizable rights issue to fund their offshore acquisition of Stillwater Mining. In light of the expected dilution, as well as uncertainty about the merits of the deal, the position in the fund was reduced throughout the quarter. The fund’s exposure to AngloGold Ashanti was increased. AngloGold has a globally diverse portfolio consisting of low cost operations, with the exception of South African assets. Unlike other locally listed gold producers, AngloGold does not have to follow an acquisitive strategy to sustain and grow production as they have a number of promising projects in their portfolio. This will limit the potential for value destruction on their part. Randgold Resources is the largest offshore position in the fund. It continues to offer a superior combination of a strong balance sheet, proven project ramp-up capabilities and a strict investment framework for new projects.