Gold Stocks Dodge Drop as Risk Aversion Hits South Africa Assets

(Bloomberg) -- Gold producers escaped the worst of a two-day sell-off in South Africa as investors around the world switched to safer assets.

While the rand headed for its biggest decline against the dollar in a week and was the second-worst performer in emerging markets, South Africa's gold mining index jumped to the highest since February 2012 as investors sought havens from turmoil following the U.K. vote to leave the European Union. 

AngloGold Ashanti Ltd. led gains as Johannesburg's FTSE/JSE Africa Gold Mining Index advanced 6.4 percent. The price of bullion rose for a sixth day, climbing 1.2 percent to the highest since March 2014.

“The theme at this point in time seems to be an overwhelmingly risk-off one,” said Jana Van Deventer, an analyst at ETM Analytics in Johannesburg. “This has also bolstered demand for assets like the U.S. dollar, developing market bonds, and it's seen gold rally quite impressively.”

The rand earlier fell as much as 1.3 percent to 14.9508 against the dollar, edging closer to the key 15 rand psychological level it traded at a week ago before the Brexit vote. By 2:37 p.m. in Johannesburg, the currency traded 0.8 percent lower at 14.8720. It weakened as much as 1.9 percent Tuesday. The Johannesburg All Share Index dropped for a second day, led by Naspers Ltd, BHP Billiton Ltd. and MTN Group Ltd.

Yields on rand-denominated benchmark government bonds due December 2026 were little changed at 8.83 percent after rising 14 points Tuesday.

‘Uncertain Environment'

“Investors are taking stock of the potential fall-out from Brexit and looking for investments that can protect wealth and whatever is viewed as least risky in this particularly uncertain environment,” Van Deventer said.

Foreign investors seeking higher yields have continued to pile into South African bonds and stocks, helping to cushion the rand. They were net buyers of 1.8 billion rand ($121 million) of South African debt on Tuesday, in the longest streak since 2011. Stocks are experiencing the longest buying trend since 2002, according to data from the Johannesburg Stock Exchange.

“We cannot ignore the wave of money flowing into emerging markets as the global search for yield gathers steam in the wake of recent developments,” Mohammed Nalla, head of strategic research at Nedbank, said in a note Tuesday. “While we remain fundamentally bearish on the rand from current levels, we have revised our year-end view significantly stronger to 15.30-15.50 rand per dollar, compared to our previous estimates of just above 16.00 rand.”

To contact the reporter on this story: Xola Potelwa in Johannesburg at xpotelwa@bloomberg.net. To contact the editors responsible for this story: Robert Brand at rbrand9@bloomberg.net, John Viljoen, Douglas Lytle