When trading closed for the week ending July 14, the JSE's entire share index had shed 3.19% over the five-day period. As the full impact of Israel's operations in Lebanon became apparent, the index saw the value of 100 listed shares dip, 32 remain unchanged and just 30 showed an increase. In the Top 40 index, 33 declined and only eight advanced.
As further disquieting news came in from the Middle East, and as the price of oil rose, bullion rallied, with the gold spot price climbing to a seven-week high of $667.95 an ounce by July 14.
South African gold stocks also bucked the general trend on the JSE, with Gold Fields (GFI) gaining 1.75% on July 14. There were also solid rises for junior miner Western Areas (WAR), which ended up 2.38%, while DRDGOLD (DRD) jumped 2.27%.
Market analysts say that the higher gold prices will probably help to keep the rand, which has been subjected to pressure in recent weeks along with the currencies of other developing markets, relatively steady and help ward off inflationary pressures.
Gold has been grabbing headlines all year. Bouncing back from a 20-year bear market, the metal reached a 25-year high of $710 earlier this year, a long way from the low point of $250 per ounce in 2001. However, in historical terms this is still quite inexpensive as gold spiked at $870 per ounce in 1980, suggesting that the metal could have a long way to go yet, especially when inflation is taken into account.
Asia has been a key driver in the market, with India being the world's biggest gold market and China following closely behind. Analysts believe that China has the potential to be as large a market for gold as India, as it recently liberalised draconian restrictions on the ownership and trading of the metal, and even opened a gold exchange in Shanghai. As ties between Pretoria and Beijing have warmed of late, these developments are expected to boost South Africa's economy.
However, there is no shortage of gold in the world and this gives rise to a level of uncertainty. Gavin Keeton, senior vice president at Anglo American, explained the vulnerability to OBG.
"The big unknown, always in gold, is the amount sitting in central bank vaults, above ground there are huge stocks available. I don't think one ever faces the risk in gold of there being shortage. Certainly demand can exceed new production, but not exceed stocks," Keeton said.
That said, investors also flock to gold in times of trouble and so the outlook is good for significant gains in the coming weeks. As the biggest producer of gold in the world and with the metal being South Africa's single largest export, the country is in a good position to weather any cooling off in emerging markets in the immediate future.
The dark cloud remains the price of oil, now reaching nearly $80 a barrel. If the dollar appreciates rapidly then South Africa could face a considerable rise in the price of basic goods, as transportation costs tend to have a profound affect on the price of such items. As such, the governor of South Africa's central bank will likely be keeping a close eye on consumer price inflation in the coming months.
Just a few months ago, many in government and industry were complaining that South Africa's overdependence on resources was making exporters uncompetitive. Gold's rising value was a major factor - some would say the main factor - in an 80% appreciation of the rand against the dollar since 2001. Now, with emerging markets threatened by a capital flight, many in South Africa will benefit from the country's abundance of this reliable and long sought after resource.