Gold prices climb to 3-Month high

...and Zimbabwe needs policy review to maximise earnings

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HARARE – The price of gold – one of Zimbabwe’s top export earners soared to above US$1,830 per ounce on Monday, which is a three-month high amid a weakening dollar and “substantial” fears of inflation in the U.S market.

At the moment, inflation seems to be the word of the day in the world’s biggest economy while the dollar’s declining purchasing power, and in turn, triggers buoying metal prices.

These economic indicators basically boost the appeal of gold, which is historically perceived as a hedge against inflation.

Data provided by Metals Daily shows the price of gold at a high of US$1,839 per ounce as of Monday 11:40 am CAT, and prospects for a further climb depend on the U.S monetary policy stance – where the Biden administration is pushing for a US$2.3 trillion stimulus package.

If the fiscal stimulus plan is approved, it will potentially derail gold’s upward trajectory.

Shifting from the U.S, whose currency and economic policies have a direct impact on the commodity markets, the price of gold is of key significance to Zimbabwe. Gold is one of the country’s leading foreign currency earners, but the country has its own internal flaws that have reportedly hindered the maximization of the amount of gold produced.

Gold deliveries to Fidelity Printers and Refiners (FPR) tumbled 30.48 percent during the first quarter of 2021 to 3.98 tonnes compared to 5.72 tonnes achieved in 2020 first quarter. This decline is a cause for concern, where the country seeks to recover from the 2020 poor outturn.

Cumulative gold deliveries to FPR in 2020 declined by a staggering 31% to 19 tonnes following lower deliveries from small-scale miners who produce about 60 percent of the country’s gold annually.

Status of the industry

Although 2020 was characterized by COVID-19 induced disruptions, the gold payment structures are a major concern and have been widely blamed for promoting side marketing as gold producers turn to lucrative markets – which is an illegal activity as FPR remains the country’s only certified buyer of the bullion.

The government says gold worth at least US$1.2 billion is illegally exported from the country annually.

Using the 2020 figures where a total of US982,2 million was earned from gold exports, it means the country is losing more gold to side marketing than it is receiving through the official channels.

It could take only a stroke of the pen to fix the problem. A favourable payment structure in line with international market prices can promote gold deliveries to FPR.

Formalisation of artisanal mining industry

Despite being the major gold producers, the artisanal mining sector is synonymous with “illegal miners” in the country. Minister of Finance, Professor Mthuli Ncube recently highlighted the need to formalize and decriminalize the work of small-scale gold panners so that the government can reap enough foreign currency from the sector.

There is also a consideration for the sector to list on the US dollar-denominated Victoria Falls Stock Exchange (VFEX) which if executed can widen capital to the sector, and lead to higher productivity.

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Zimbabwe stands to gain from the firm metal prices being experienced year to date. In our commodity check reports, we have highlighted a surge in commodity prices across the board from mining to agriculture and we think this is going to boost the country’s export receipts come year-end by a considerably higher margin. However, policy structure remains a key factor in promoting the maximization of produce towards a dream to achieve US$12 billion in mineral revenue by 2023.

Gold and platinum are especially key in achieving that feat. The international prices are quite encouraging, and now it is on government – through its policy stance to ensure that the country benefits more from the vast mineral resources that lie underneath.

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