South Africa’s Rand On The March Again

There’s something big stirring in the world of foreign exchange trading. And for once it’s not the mighty US Dollar.
It's the Euro either, nor China's Yuan. That big rumbling noise you can hear is actually coming from South Africa's currency, the Rand.
The Rand (ZAR) has enjoyed a couple of years of solid gains after what was almost a meltdown in its price between 1996 and 2001. Back then it moved from 3 Rand per US Dollar to almost 14. That's some drop! But starting at the beginning of 2002 the Rand made a solid recovery. USD/ZAR has traded back up to around 6.00 – take a look here:
http://www.fleetstreetpublications.co.uk/chartdisplay/#graphic3
You can see it start falling in 2006 though, right? It now looks like the South African Rand is once again on the march to weakness. And there could be much more to come.
Since the beginning of this year, the South African currency has looked very weak. Now it is trading above its long-term weekly moving averages (the yellow, green and red lines on my chart). This is surprising given that Gold was soaring earlier in 2006. As a major Gold producer, there's a very close link between the South African economy and the Gold price.
So why is the Rand looking so weak? Well, it appears that there is the distinct possibility that the government may pursue a "land grab" policy as part of its ongoing post-Apartheid reforms. Up to 30% of white-owned farms could be redistributed to black farmers.
That might sound fair enough politically. But the fear here is that it will end up leading to the panic and terror of the Zimbabwean crisis starting in 2002. The flood of money trying to get out of Robert Mugabe's gangster state has sent the Zimbabwean Dollar into freefall. It's become virtually worthless, and this summer inflation in Zimbabwe's shops reached 1,200%.
Just to the south, the problem for South Africa's white farmers is that if a "land grab" is pursued – and they are forced to sell all or parts of their farms to the government at a price they haven't agreed to - land prices will collapse overnight. There will be no market and no buyers except the government.
I am told that agriculture accounts for approximately 40% of South Africa's economy. So the potential for a big run on the currency – the Rand - is enormous. Capital will flee offshore almost overnight. But the deeper concern is that should a land grab become policy, then the exodus of money will cripple the South African economy.
This week I have called a couple of Rand experts I know in the City and got their considered opinion. It's not good. They say that USD/ZAR could easily shoot from 6.00 to 100.00 if such a proposal became law.
Certainly looking at the chart, South Africa's money is definitely on the march again. And the whispers are getting louder.
By the time it’s shouted from the hills it will be all done and dusted. I can tell you that every professional forex trader in the market will grab a piece of this one if it happens. Like jackals, they'll pick the carcass bare.
I can't say whether the land grab in South Africa will come to pass – and depending on its terms, the collapse of the Rand might not be so swift.
But I do know one thing for sure. If I was a South African farmer without a spread betting account today, I’d be kicking myself if I at least didn’t sell the Rand when I handed over the deeds to my estate. P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.

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South Africa’s Rand On The March Again

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South Africa’s Rand On The March Again