More Good News for Gold Bugs

A few days ago, I told you about some problems looming in South Africa in regards to the gold market, and how it represented a good buying opportunity for gold bugs.

It seemed that workers were not happy with their salary and wanted a pay increase, while those in the industry thought the pay hike was exorbitant. Every day of striking meant more lost revenue for the gold industry–a total of $20 million per day.

Market watchers were worried about how long the strike would continue–as the first day saw the price of gold and gold stocks dip. I’m happy to report that, after only five days of strikes, an agreement has been reached.

The three largest gold industry labor unions were able to come to an agreement last week, accepting a raise for workers of between six and seven percent. This is double the inflation rate for the country, which was 3.5 percent this past June.

“It’s a two-year, win-win deal and we’re very pleased,” Frans Barker, the chief negotiator for the industry body, said yesterday. “Workers will return to work tonight.”

This agreement marks the end of the largest strike in South Africa since 1987. There will also be a 300 rand increase in allowance for accommodation per month. The pay increase varies per company and sometimes between employees, as well. At Gold Fields, lower-paid employees will see more of a pay increase than higher-paid ones.

“In the context of the current labor environment, the settlement is not unreasonable,” Willie Jacobsz, spokesman for Gold Fields, said.

“We entered this round of negotiations seeking to address aspects of transformation in the industry and also to improve the socio-economic conditions of our members,” Gwede Mantashe, the National Union of Mineworkers’ general secretary, said. “The union believes, to this extent, it has achieved its objectives.”

 The production of gold in South Africa fell last year to 342.7 tons, the lowest it has been 73 years, with labor costs making up 50% of company expenses.

With lower production and higher wages, the price of gold has nowhere to go but up from here to keep revenues and profits in line with expectations. Yes, that’s more good news for gold bugs.

It’s no wonder Michael’s loving yellow these days.