If South Africa still accounted for two-thirds of the world’s gold production as it did in 1970, the rand would be a lot stronger than it currently is and the economy would be growing at a brisker pace. 

Alas, South Africa only ranks eighth in the world on the gold production front these days as shaft depths have plunged and grades have fallen. 

Still, while its importance is much diminished, the precious metal’s performance is at least one shot in the arm of a moribund economy and a lift for investors in JSE-listed gold producers. And the price outlook generally remains bullish. 

In the year to date, gold’s price in dollar terms is up over 9% at over $1,990 an ounce. It is not too far off its peak of $2,048 scaled in April 2023. Its record high of over $2,074, reached in March 2022 in the wake of Russia’s invasion of Ukraine, is a bit of a climb from current levels but remains within reach. 

In rand terms, gold is up around 17%, and this enhanced revenue stream is flowing to the bottom line of local producers. 

Harmony Gold is the best gauge in this regard as South Africa remains its main production base, and its share price is up close to 70% in the year to date. 

The share price of Gold Fields, which gets most of its production from outside South Africa, is up over 30% in the year to date. 

By contrast, the share price of diversified metals producer Sibanye-Stillwater has fallen around 60% since the start of 2023, dragged down by the company’s heavy exposure to platinum group metals (PGMs), which have seen their prices collapse this year. 

In addition, the market responded negatively to a sizeable convertible bond issue on Tuesday, which will have the effect of diluting the value of existing shareholder’s shares.

In some ways, the factors boosting gold’s appeal as a “safe-haven” asset – geopolitical turmoil, debt worries and uncertainty about global economic growth – are also undermining PGMs, which require robust industrial demand. At the same time, gold’s price has held up well in the face of traditional headwinds such as high interest rates and a relatively strong dollar. 

However, the gold price still has incoming waves of uncertainty to ride. 

“I think what is a driver is a fear that we are about to be overwhelmed by a debt explosion. When Liz Truss was in charge of the UK for 44 days, she managed to scare the living daylights out of the bond market to such a degree that I refer to that moment as the straw that broke the camel’s back,” David Tait, CEO of the London-based World Gold Council (WGC), told Daily Maverick in an interview. 

“I think we are on the cusp of a debt problem in the world that’s going to come home to roost. So, what I think is going to happen is that currencies get devalued and, in that context, people gravitate to what they think is a natural home, which is gold.” 

Soaring borrowing costs have thrown debt back onto the radar screens of investors and there are red flags over the sustainability of debt burdens in many developing economies. 

Historic central bank purchases have underpinned gold’s performance, and this has been broad-based, suggesting that concerns about depreciating domestic currencies are leading to a diversification of reserves.  

“… the major driver is central bank diversification of their own reserves and central banks who have been buying from developing economies and they are continuing to do that,” Tait said. 

Central bank purchases of gold in the first nine months of 2023 reached 800 tonnes, a year-to-date record for that timeframe, according to the WGC’s latest quarterly report on demand trends.  

World gold production also hit an all-time third-quarter (Q3) record of 971 tonnes this year, signalling that there is a global scramble to get the precious metal to the market while prices are red hot. 

Four countries – Canada, the US, Ghana and Australia – were the main drivers of the Q3 rise in global output. South Africa pointedly is not a driver and probably won’t be again, at least not for the foreseeable future. 

And gold’s run, while clearly a positive for the South African economy, simply does not pack the domestic punch that it once did. 

Minerals Council SA data show that South African gold production fell to 84 tonnes in 2022 from over 150 tonnes in 2012, extending a long-term decline. 

Employment in the gold mines over the same period fell to 94,000 from over 130,000. 

Gold is glittering at the moment, but for South Africa, the glow has faded. DM