via Gold prices slide – NewsDay Zimbabwe December 14, 2015
Gold prices are expected to continue to follow a moderate downward trend in 2016 amid gradual changes to the United States Fund Rate that will mostly impact developing countries.
BY TATIRA ZWINOIRA
Changes to the fund rate will impact on commodity price volatilities, which the Chamber of Mines of Zimbabwe (CoMZ) says is due to the lack of diversification and value addition.
Speaking at the Zimbabwe National Chamber of Commerce business review last week in Harare, CoMZ chief executive officer Isaac
Kwesu said that the tumble in commodity prices is on the backdrop of a weak global economic growth.
“Gold prices are expected to continue following a moderate downward trend in 2016 in line with gradual changes to the United States Funds Rate. Global commodity prices, which peaked during the commodity super cycle in 2012, have significantly tumbled over recent years, primarily on the back of a weak global growth characterised by a pronounced slowdown in China’s economic growth momentum,” Kwesu said.
“Coupled with weak economic recovery in Europe and sluggish growth in the United States, the demand for commodities has been severely undermined, with adverse implications on their prices.”
The proposed increase in the United States Fund Rate is expected to make it more expensive to do business, especially on developing countries that are heavily reliant on the US dollar.
As the US dollar remains Zimbabwe’s main currency, it is expected to significantly impact on commodity prices and foreign direct investment.
Gold prices have fallen consistently on the back of a strengthening US dollar and of late it has been dictated by the anticipated increase in the United States Federal Funds Rate or interest rate.
“Revenues from gold have trended downwards since 2012 on the back of falling prices. The notable volume increase in 2014 was more than offset by the decline in prices, hence the fall in the value of gold in 2014, improved volumes in 2015 and 2016 will drive increase in the values,” Kwesu said.
“The decline in commodity prices, against a background of high domestic production costs, has resulted in serious viability challenges, particularly in the gold industry as most producers are failing to breakeven at an average cost of
$1 200/ounce and prevailing price of under $1 100/ounce.”
He said diversification across sectors and across minerals should also be pursued to avoid over-reliance on a few commodity exports and markets, that way creating scope for developing countries to reduce the impact of shocks.
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