Market sentiment is changing on a global scale, towards realising value in gold for the long term as it rallies to new highs after increased, large-scale “safe-haven investment” in the commodity, says international trade credit insurance company Coface field credit analyst Bhavin Madhavji.

In the US, President Donald Trump’s winning the presidential election initially sent equities to a record high and gold tumbling on speculation that economic growth and interest rates will rise. The US Federal Reserve remains cautious in raising the US interest rate.

“Fear over Trump’s protectionist trade policies have led investors to opt for investing in gold, which is seen as an alternative investment in times of geopolitical financial turmoil,” says Madhavji, adding that gold prices are striking a two-month peak, buoyed by uncertainties surrounding economic policies that could stifle growth and the weakening of the dollar.

He points out that, in the short term, gold has recovered considerably, with more than 5% of gains being realised in 2017, and 10% from its December low. “The growing weakness of the US dollar could push the gold price higher.”

“A number of analysts have said that Trump's fiscal push on infrastructure will be great for commodities, such as gold and silver, as inflation will drive prices and demand upwards,” suggests Madhavji.

With more than 55% of global gold demand being accounted for in Indian and Chinese markets, he says that activities in these countries have a direct effect on global trading volumes, with reserves driving prices and demand. In this regard, seasonal gains are expected to filter through following the Chinese Lunar New Year, as gold is traditionally bought as gifts during this time.

In terms of European markets, there is further uncertainty resulting from Britain’s exit from the European Union (EU), or Brexit, and the elections in France are drawing to a close. Electoral candidates look to adopt policies which will result in France also exiting the EU. In addition, electoral candidates in the Netherlands share similar sentiments, which could raise further uncertainties in European markets.

“Demand for gold during these times of uncertainties is expected to rise, as investors look to diversify and secure funds in alternative commodities,” says Madhavji.

“South Africa has been one of the largest gold producers for over a century and has proudly been the source of one-third of all gold ever mined”, he says, commenting that now, however, faltering domestic production has resulted in South Africa’s position in terms of gold production dropping from the first place of recent times to seventh place in 2016.

The demise of domestic capacity is a combination of diminishing reserves, increasing labour costs, frequent stoppages and regulatory uncertainty, which “prompted major mining companies to rethink their presence in South Africa”, Madhaji adds.

The situation is compounded by domestic wage inflation “constantly eroding margins”, resulting in the largest mining companies moving their portfolios elsewhere and driving investors to value South Africa-focused stocks more cheaply than stocks in other jurisdictions.

Madhavji points out that the FTSE/JSE Africa Mining Index trades at 1.3 times book value, compared with 1.9 times for the Bloomberg World Mining Index: “The measure for South African stocks has been at a discount to the figure for the global index for the past five years.”