Will South African labor problems affect metals?

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J. Keith Johnson
Senior Writer, The Gold Informant
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      J. Keith Johnson

      J. Keith Johnson is a self-proclaimed contrarian, always questioning the front page and striving to read between the lines. His Austrian and Libertarian perspectives on current socioeconomic and geopolitical events are fueled by his insatiable desire to keep learning. He’s not content to merely study and learn though. As he’s grown in understanding issues that sometimes have far reaching implications, he desires to help others understand the truth. Simply understanding the truth through the fog of disinformation, media spins and mainstream manipulations is a major part of the battle. But only in understanding the truth can people plan and prepare for the future.

      Having been a gold bull for fifteen years, he says he’s not a perma-bull; but he’ll remain a bull as long as the fundamentals dictate. After writing several blogs, studying markets and especially precious metals, J. Keith Johnson is now writing as The Gold Informant. You’ll find his articles on The Gold Informant website, Seeking Alpha, The Motley Fool, The Daily Caller, Goldco Direct and occasionally on various internet financial and news sites.

Is it possible that continuing problems in South Africa will cause gold prices to soar? At this point it’s difficult to tell. However, it is clear that a lot of people are losing a lot of money due to the labor conflict.

Locally, economic hardship is putting a great deal of pressure on both workers and mining companies. With the latest “take it or leave it” offer from the companies being rejected by unions, the future of the mining operations is anything but certain.

For AngloGold Ashanti and Gold Fields, the strike is digging deep into profits. Between the two of them, the weekly cost is over 48,000 ounces. That’s over $84 million in unrealized gold revenues per week.

For AngloGold, which boasts one of the lowest costs per ounce in the industry ($794 Q1 2012), the current labor disagreement is costing over $28 million in profits each week, not counting operating costs of maintaining non-working mines. More information from AngloGold can be found on their Strike Information page.

A strike that started with platinum miners this summer, resulting in police shooting 34 miners on August 16, has escalated to include gold miners, among others. However, it doesn’t seem that work strikes are limited to miners in the fractured country. Truck drivers are threatening to strike now, as are many government employees.

For South Africa the current challenges run deep. Understanding the tensions is difficult for a westerner, especially if they have never spent time in South Africa. Perhaps the divide between the elite and laborers is coming to a head with this round of strikes and violence. Only time will tell. However, for the people of South Africa, this is a time of financial hardship.

While we’ve seen some decent price action in metals in the past month, it’s very difficult to gauge how South Africa has affected gold prices. Seeing precious metals pull back from February highs, a move upward was expected anyway. And it appears there may be more price increases in the near future. Fall and winter tend to be good to metals.

I wouldn’t look at Africa as an excuse to buy metals. Instead, world economies struggling, continued QE and increasing debt all point to macroeconomic reasons people should seriously consider a position in hard assets. During such tumultuous times, metals tend to hold their value very well, usually surpassing inflation rates.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.