THE JSE dived more than 3% on Thursday, joining the global equity market rout, as investors digested the implications of the likely moderation in US monetary policy stimulus.

The sell-off extended to government bonds, the rand and commodities, sending the gold price to its lowest in more than two-and-a-half years amid broad-based dollar strength. The rand fell to a worst level of 10.32/$, from the previous day’s best of 9.90/$.

South Africa and other emerging markets have benefited from the US’s ultra-loose monetary easing programme through bond and equity portfolio inflows.

Foreigners are still year-to-date net buyers of R17.239bn of local shares‚ compared with net buying of R2.1bn in the same period a year ago. Foreigners are net buyers of R10.66bn of local bonds this year.

But on Thursday stocks in Europe, Asia and other emerging markets fell across the board.

The JSE all share index ended nearly 6% below its May 31 record peak, while government bond yields jumped sharply.

The benchmark R186 bond traded at 8.27%, compared with 7.88% at Wednesday’s close.

Emerging market stocks measured by the MSCI emerging markets index recorded their biggest fall since September 2011. The spot gold price tumbled more than 4% to levels last seen in September 2010, piling pressure on gold shares such as Gold Fields which ended 4% in the red, as investors anticipated losses for miners in the wake of the metal’s fall. The gold index closed 3.73% down. Spot platinum and the platinum index were also hit.

On Wednesday, Federal Reserve chairman Ben Bernanke announced that the central bank might start reducing its bond purchases and end the programme next year, should risks to the US economy abate.

In a Bloomberg survey on Thursday, nearly half the economists polled predicted the Fed would cut its $85bn monthly bond purchases by $20bn at its September 17-18 meeting. Speculation about Mr Bernanke’s move has been a catalyst for volatile equity and bond markets since late last month.

"Spot gold and the dollar are often inversely correlated," IG SA market analyst Shaun Murison said. "When we consider that gold is primarily traded in dollars, a weaker dollar often equates to increased foreign demand as gold becomes cheaper in their respective currency terms. Stimulus measures introduced by the Fed have seen safe haven buying in the metal, which is also in part a currency hedge," said Mr Murison.

Mr Bernanke said inflation over the medium term was expected to be at or below the Fed’s 2% target.

"Things are beginning to look better for the US economy, so there is less of a reason to be in gold‚" said Chris Gilmour‚ analyst at Absa Capital.

But some analysts have characterised the global sell-off as excessive. "It is ironic that confirmation of a better economy should hit the stock market because a better economy means better company earnings. But it is a case of investors getting used to a potential reduction in bond-buying by the Fed and therefore higher bond yields," said Paul Hansen, a portfolio manager at Stanlib Wealth Management.

Independent analyst Ian Cruickshanks said it was inevitable that liquidity injection into the US economy would be cut back or halted at some point. "Even though we continue to be less optimistic than the (Fed) on growth, we continue to expect a faster decline in the unemployment rate," he said.

"While gold shares are being punished‚ the rand price of gold is actually 10% higher than in April. South African gold miners are making money in rand terms and all other gold miners in the rest of the world are probably not," Wayne McCurrie of Momentum Wealth said.