A happy belated welcome to 2026, and if the start is anything to go by, it promises to be a very interesting period ahead.
- Let me start with a little useless trivia to boggle the mind.
- If you listen to Micheal Jackson's “Thriller” album today, it's the equivalent of listening to music from 1938, when Thriller was released.
- Who was top of the charts in 1938?Artie Shaw! Yeah, me neither!!
- Why this useless bit of information? It speaks to the compression of time as we get older, and the inevitable speed of events today. And this is what the future looks like….event after event and the fast forward nature of things.
- Already, in the few short weeks of 2026, we have had the removal of Venezuela’s sitting President by U.S special forces. We have had massive protest activity in Iran, possibly eventually leading to external intervention, and the incredible advancements in AI dominating the technological landscape and equity valuations.
- Gold and other precious metals are at record highs and EM currencies like the ZAR at levels last seen almost a decade ago.
- Speaking of AI – we recently had a small economic think tank discussion at our offices. It was supposed to be a discussion about global economics, however it turned, almost entirely, into a discussion about the future of AI and where it leads us WRT:
- Employment,
- global conflict,
- medical advancements,
- and a whole host of other implications.
- Sadly, the conclusions that were drawn were firmly in the “who knows?’ camp.
- Interesting times indeed.
- As for precious metals and the future valuations thereof, we “concluded” that we may well be in the early phases of the demise of Fiat currencies.
- That may seem like an extreme conclusion!
- However, lets dive a little deeper into the action playing itself out at the moment.
- Gold, silver, and platinum have all had stellar gains over the last 18 months or so.
- Gold is up by close to 122% in the last 2 years. Silver …. 278%. Platinum … 132%.
- Ordinarily when precious metals rise you would expect the Dollar to follow suit. And yes, the dollar has declined in value, about 9% in the last 12 months (DXY index).
- However, recent price movements have actually been marginally positive for the USD, even as precious metals have continued to climb.What this may be telling us is that no one really wants to own any particular currency at the moment and that Investors are moving quickly into “alternate’ store of value currencies like precious metals.
- And why so? ….well that answer is easy, and I have written about it many times in the past few years.
- Sovereign debt…mountains of it, and its inflationary impact.
- Governments all over the world finance their overindulgence by issuing debt, and the growth in debt levels relative to GDP have exploded in recent years/decades.
- The US debt is at around 120%+ of GDP, Japan is around 200%, China …who really knows? And all over the world debt levels have finally become a topic of concern.
- And what governments continually do is focus on economic growth, thereby ensuring continued spending beyond their tax collections. And therefore, the debt levels continue to rise, and investors have become nervous.
- This nervousness means that fewer investments are finding their way into government debt and the excess must find a new home – precious metals are the winner.And what do governments do if they increasingly find it difficult to finance their profligate behaviour … they tend to print money thus, completing the circle of debasement and inflation.
- Of course this is a very simplistic explanation, things are a lot more complex and the USD is still the global means of trade.
- But investors are changing the nature of their allocations, with precious metals being benefiting from this activity.
- At the very least investors demand a higher premium leading to higher long term interest rates, which in turn drains the fiscus even further, leading to more borrowing and so on and so forth.
- Let’s not even speak of crypto …that’s an entire other saucepan of fish.
- Which all brings me neatly back to the performance of the Rand over the last 8 months or so.
- Rewind the clock back to April/May 2025 where the Rand was unhappily trading at close to 20 to the USD.
- I would venture a guess that no one had 16 as a handle for the ZAR a few short months later. I certainly did NOT.
- But here we are and suddenly some people are suggesting that '15 something' should be an appropriate level for the local currency.
- This simply proves how fluid and dynamic financial markets are.I have been asked many times the last few days “why is the ZAR so strong?????” or something along those lines.
- Second question “Where to from here?” And so let me dip my toes into predictions' murky waters, only to be proved hopelessly wrong in a few months’ time!!!
- Precious metal prices remain supportive for the Rand and look likely to remain so for the foreseeable future. We still export tons of the stuff.
- The Rand has benefited from a number of positive developments over the last few months.
- Metals
- A slightly improving political landscape domestically
- Lower interest rates globally
- Some fiscal improvement metrics in SA
- The improvement in SA’s energy supply – mainly as a consequence of private investment
- A general improvement in SOE performance
- However….
- SA’s economic growth is still paltry – even though there is some expectation of moderate further growth in the quarters ahead,
- our policy mix hardly fosters any confidence for further investment,
- SA/US relations continue to deteriorate,
- And importantly the ANC elective conference later in the year will create some noise.
- Therefore, my view is that even though Macro factors remain supportive for the ZAR - we should not expect anywhere near the same kind of performance for the ZAR that we saw last year.
- I struggle to foresee a Rand materially stronger than 16 to the USD, and any such strength would be detrimental to the export sector.
- Global dynamics also mean that some kind of crisis is never far away.
- I am cautiously optimistic for the year ahead – mainly predicated on the fact that I remain constructive for precious metals.
- But do I foresee the same kind of picture as 2025? …not so much.
- I do also wonder if in 2070 people will still be listening to music from the 2020’s ….somehow I don’t think so ….but my kids will tell me that’s just the old man in me saying ‘when I was your age'...
May 2026 be fruitful for you all, it promises to be very interesting. Let the music play.