Last year was an interesting year across various markets, with some of the main events being the trade wars between China and the USA and the impact on the global economy, the role that Central Banks were starting to play in the economies of the world and the ever increasing calls from all over the world of an impending recession. All these events had an effect on one market in particular that being the commodity market, where we have seen metals, especially Palladium, reaching new heights. This got us thinking, do we treat 2019 as an anomaly or did 2019 fit into the norm of previous years with regards to the correlation between the metal prices and the Rand.

The simplest way to visualise this is by drawing two simple correlation matrices, the first one showing the correlation of the Rand, Gold, Platinum, Palladium and Rhodium against the U.S. dollar from 2012-2018 and the second one only for 2019. Should there be a major difference, we can safely say that 2019 was an outlier and went against the grain of the last decade. 

2012-2018 Correlation Matrix

From the above, there are a couple of correlations that stand out immediately and that is the strong negative correlation that the USD/ZAR and Gold and Platinum had for the period. This makes sense as a weaker dollar increases the value of other countries’ currencies. This increases the demand for commodities, including gold. It also increases the prices. When the U.S. dollar starts to lose its value, investors look for alternative investment sources to store value. Gold is an alternative. The Rand is also seen as a commodity currency which will also move inversely should the Gold price increase. With most of the other correlations falling in the insignificant band, this gives us a nice picture of the market as we head into the 2019 matrix.


2019 Correlation Matrix


Right off the bat we can see a very different picture than the previous matrix, with no negative correlation insight. In terms of a mining point of view, 2019 was surely the sweet spot that mines were looking for in terms of price movements. The correlation is a mirror image in what we saw in the markets last year, with E.M. currencies under pressure due to the uncertainty in the markets and commodities, like Gold enjoying the uncertainty, while Palladium was enjoying a surge in demand. However, the basis of this is to show that while 2019 was a watershed year for currencies and commodities, based on previous evidence 2019 is likely to be an outlier and from what we have seen in the first part of 2020 some of the steam have run out.