South African Labor Dispute Might Tighten Gold Supply

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Last Updated on: 10th February 2023, 11:53 pm

As a natural resource, gold will always have a limited supply. There is only so much gold that can be mined from the earth. Recent developments in the gold mining industry in South Africa, as well as around the world, signal that the gold supply could be tightening for both consumers and investors. Two of South Africa’s largest unions for gold mining workers are both demanding outlandish pay increases and a production-halting strike might be inevitable.

Even a hiccup in South African gold production would have a major effect on global markets. In 2009, South Africa was ranked only behind China and Australia in gold production. A U.S. Geological Survey that same year estimated that South Africa produced 210 metric tons of gold.

Nowhere near a resolution

Last month, the Association of Mineworkers and Construction Union (AMCU) and The National Union of Mineworkers (NUM) stated their demands of South Africa’s Chamber of Mines and other gold companies. Despite South Africa’s inflation rate being around 6%, the NUM, which represents 300,000 miners, has asked for a 15% pay increase. While this might seem a little unreasonable on the NUM’s part, it is nowhere as ridiculous as the AMCU’s demands. The AMCU, which has 50,000 members, has gone as far as demanding a completely irrational pay increase of 100%. While the NUM’s exaggerated pay increase of 15% could be written off as a negotiation tactic, there is no real logic behind the AMCU’s demand for its members pay to be doubled. While the AMCU might have a lower global membership, it has a higher percentage of workers than the NMU at some of South Africa's largest gold mines.

None of the unions in South Africa can expect all of their demands to be met, but the gap between the two sides became apparent last week when gold companies counter offered the unions’ proposal with a modest pay increase of 4%. As contract negotiations continue this month, the tension between the two sides is building as neither are anywhere near reaching a happy medium.

Tension worst since apartheid ended

While tension between the gold workers’ unions and gold companies is nothing new, the intensity of this year’s labor dispute is being “billed as the toughest since the end of apartheid” due to the gigantic gap between the demanded and proposed pay increase. This is a terrifying prospect for all of South Africa due to the violence and civil unrest that has come with labor disputes in the past decade. The civil unrest surrounding last year’s illegal, three-month strike claimed the lives of 50 people, most of whom were killed by law enforcement officers during what is now known as the Marikana Massacre.

Supply Issues Around the Globe

This struggle is coming on the coat tails of reduced gold production around the world. Less than one month ago, the world’s third largest producer of gold, Australia-based AngloGold Ashanti Ltd., announced that it would be cutting back on production. AngloGold Ashanti Ltd. also mines in South Africa, which would indicate that this gold company will not be in the position to meet the unions’ ridiculous pay increases. In Switzerland, some gold refiners will be closed in August in order to go on summer vacation. On Monday, Joyce Liu, an investment analyst at Phillip Futures in Singapore, told South Africa’s Fin24 that the same gold refiners in Switzerland “have stopped taking orders” due to this holiday.

Needless to say, several media outlets around the world have reported in the last week that hedge funds and money managers are becoming even more bullish on gold and other precious metals than ever before.

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