Higher gold prices on SA miners’ strike?

Rumblings of a strike in the South African mines are starting to circulate, and with them come expectations of higher gold prices. After all, South Africa is more identified with gold production than any other country. However, would a South African strike affect the price of gold as much as many gold bulls expect? And, is a strike a real possibility? Further, if there is a strike, how long will the workers stay out?

The primary issue between the workers and the mines is amount of the increase in wages. The South African Chamber of Mines, which represents the country’s mining companies, has offered an increase of about 7.5%. At the negotiations, NUM, the National Union of Mine Workers, is asking for 15%. In trying to rally public support, however, NUM talks about “double digit” increases. Since 10% increase would be “double digit,” there is a lot of room for compromise.

One might think that talk of a strike in the South African gold mines would send the price of gold higher. Historically, however, strikes in the mining sector have not seriously damaged South African gold production as the two parties usually come to agreements fairly quickly, often days before the strike deadline or days into a strike.

Additionally, the impact of a strike in South Africa would be more psychological than physical because SA, while still the world’s largest producer, no longer produces the lion’s share. According to the Gold Institute, SA produces 12% but Australia and the United States are nipping as SA’s heels at 10%, with Peru and China at 9% each, and Russia at 8%. Gone are the days (the 1970s) when South Africa produced more than 60% of the world’s gold.

Still, if there’s a SA strike, then the price of gold could rise. My guess, however, is that an agreement will be reached. If I’m wrong, then only 10% of the world’s gold production will be affected.

As for the price of gold going higher, geopolitical events or the US$ Index dropping through 79 is more likely than a prolonged shutdown of South African gold production. Before investing in gold, read our page on gold bullion investments.