As South Africans, we are no strangers to gold. After the discovery of gold in Joburg in 1886, the miners and fortune-seekers who rushed here played a pivotal role in developing the country’s economy. At its peak in 1970, South Africa produced close to 70% of the world’s gold output.
For investors, gold investments are increasingly important. Over the past 10 years to June 2025, the rand gold price has appreciated 320%, outpacing the MSCI world index total return of 308% and the JSE all share index (Alsi) total return of 161%. Meanwhile, gold equities shifted from a 1.4% composition in the Alsi in 2015 to 15% now.
Before 1944, gold functioned as both a medium of exchange and a store of value. In 1944, the Bretton Woods gold-dollar system came into play: currencies were pegged to the dollar, which was convertible to gold at $35 an ounce. This arrangement lasted until 1971, when then US president Richard Nixon ended gold convertibility, marking the transition to fiat currencies and floating exchange rates.
Since then, the dollar has served as the backbone for trade and global reserves, but the greenback now appears to be on shaky ground. Gold seems to be repositioning from a passive reserve asset to an active pillar of monetary strategy — a key reason for its renaissance — due to the following factors:
Being politically agnostic: The dollar’s safety as a neutral asset has been broadly reassessed. The weaponisation of Russia’s foreign reserves in 2022 — its assets were frozen overnight in response to its invasion of Ukraine — sent the clear message that dollar reserves are no longer politically agnostic.
Zero default risk: Dollar reserves are held in the form of US treasuries. The US government’s mounting debt and growing fiscal deficit put a question mark over its ability to repay the debt. Evidence of this risk is showing in the rising real yield of 10-year treasuries. The positive correlation with gold prices in the current cycle reflects the market’s desire for a reserve asset that is free of default risk.
New trade blocs: The inward focus of the EU and growing presence of the Brics bloc and others, alongside the US’s wave of protectionist policies, are creating a multipolar world. While all currencies stand to benefit from dedollarisation, central banks are increasingly holding gold as a reserve that is borderless.
Though the dollar’s dominance remains unmatched for now, the paradigm shift is undeniable. Gold’s ancient role — as a reserve of last resort — is finding new relevance in a world where geopolitical risk is no longer a tail event, but a structural feature. Central bank purchases have surged, particularly in emerging markets, with gold bulls arguing that the International Monetary Fund’s official disclosure grossly understates the true magnitude of this trend.
The core investment case for investing in gold equities is that the operating leverage of the miners significantly amplifies the performance of the underlying gold price.
AngloGold Ashanti has been Allan Gray’s highest-conviction gold equity call. The management team’s focus on maximising value is one that resonates with the Allan Gray mindset. Here’s why:
The management team’s hyperfocus on simplicity and unlocking the full potential of assets is welcomed. The Brazilian operations are a good example of this. The business originally consisted of two operating assets, the Cuiabá and Córrego do Sítio (CdS) mining complexes. CdS experienced ongoing losses, but within two years of taking over as CEO of AngloGold Ashanti, Alberto Calderon put the mine on care and maintenance and focused on turning Cuiabá into a tier 1 asset.
AngloGold has a countercyclical capital allocation approach. Evidence of this is seen in the group’s recently announced disposal of one of its low-quality South American assets, the completed sale of a speculative project in Africa at a high point in the gold cycle, and the revised dividend policy to pay up to 50% of free cash flow.
There are still opportunities involving its open-pit operation in Ghana, Iduapriem, and also in Ghana, the Obuasi mine (which stands to generate significant free cash flow as its volumes ramp up in the current gold price environment); and investments in the higher-quality Nevada assets in the US, through the North Bullfrog and Arthur gold projects (signalling a portfolio shift to lower-risk regions and opening up the possibility of a higher rating).
Despite the 168% share price rally year to date, we estimate that AngloGold still trades on an attractive 11% spot free cash flow yield and 5.5% spot dividend yield. An allocation across both physical gold and the gold miners allows investors to benefit from gold’s growing role as a reserve asset, while preserving a return profile with diverse correlations to other traditional asset classes.
Kagee is an investment analyst at Allan Gray
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