Gold slump

Hopes of the gold price rising above the US$400 mark which most believe is adequate to ensure the viability of mines are fast fading. In fact there are fears that the price might fall to a low of US$300 or at best US$350.

This is despite the tensions in the Middle east and war in the Balkan states, particularly in Yugoslavia. Although the supply and demand situation is closer to equilibrium, analysts believe there will not be an under supply.

Gold is one of Zimbabwe’s biggest foreign currency earners and most mines have reported good returns in the past year. This has been largely due to the devaluation of the Zimbabwe dollar. While earnings have increased, the cost of importing machinery has also increased and the gains made by the mines because of the devaluation should soon be cancelled as they import to replace the outdated equipment currently in use.

In the early 80s when the falling gold price became a cause of concern to the mining institutions a gold reserve price was fixed to ensure their viability. The base price, which was initially around $500, was later increased to $950 while the black market rate at the time was about $1 200.

Although the Zimbabwe dollar has been greatly devalued in the past year the reserve price has changed. It is understood that mining companies will soon request that the base price be adjusted to about $1 700 but this could still be low. South African gold mining companies are saying the right price for them to operate viably is US$420, which today translates to about $2 100.

(46 VIEWS)