Record gold prices sparkle for miners thanks to Trump tariffs, yet SA’s economy loses its Midas touch

South Africa, once the world’s gold powerhouse, is now only the globe’s eighth largest producer of the yellow metal and the only real benefit the country is seeing from record prices is the psychological impact on shares in the gold mining sector and the rand.

Overnight, Gold miners, Sibanye Stillwater, AngloGold Ashanti, Gold Fields and Harmony Gold Mining Company advanced 6.8%, 4.1%, 3.1% and 2.9%, respectively, data from Anchor Capital showed.

US President Donald Trump’s trade tariff war, especially with escalating tensions between America and China, has caused concerns over a recession on that country and a spillover effect in terms of slower economic growth across the globe.

As a result, the dollar is moving down and gold – long perceived as a safe haven for investors – is hitting record highs having broken through the$3,300 barrier to trade at $3,326 an ounce in New York just after 3am their time.

However, South Africa’s economy won’t reap the full benefits of the surge in price. Dr Azar Jammine, director and chief economist at Econometrix, told IOL that local gold output has dropped from 1 000 tons in 1970 to 100 tons now – a 90% drop.

“We are not even in the top 10 of the gold producers in the world anymore,” said Jammine. He pointed to the fact that countries such as China, Russia, Australia, Canada, and even the US produce more gold than South Africa.

Andre Botha, head of execution at TreasuryONE, explained that “South Africa has lost much of its lustre in the global gold market due to several factors. Soaring operational costs, driven by ageing infrastructure and the necessity for deep, labour-intensive mining, have eroded profitability. Declining ore grades and stricter regulatory frameworks have further hampered production.”

Botha adds that “frequent labour disputes and unreliable energy supplies, including regular power cuts, have exacerbated these issues, allowing nations like China and Australia to overtake” South Africa’s status as a leading gold producer.

Gold’s history in South Africa dates back to the late 1800s, when a rush saw an effective shanty town developed in what is now Johannesburg. Pilgrims Rest and Barberton are historical sites for mining, with tourists still being able to pan for alluvial gold in Pilgrims Rest in Mpumalanga’s Drakensburg area.

Botha says gold has little material impact on South Africa’s economy today. Production peaked in 1993, while the current record low is as of 2022, according to data from CEIC. 

South Africa has diversified significantly in terms of economic contributors, with services, manufacturing, and financial sectors now accounting for over 60% of gross domestic product, said Botha.

“While commodity exports remain important, gold is overshadowed by platinum, coal, and iron ore,” said Botha.

Jammine noted that gold was not irrelevant in terms of total export earnings, especially at current prices. However, calculations he did for IOL show that the yellow metal accounts for about 10% of total export earnings. “It’s not insignificant, but it’s not going to change everything in terms of South Africa’s performance.” 

South Africa’s integration into global financial markets, alongside growth in tourism and technology, has diminished reliance on gold revenue, said Botha.

“Domestic factors such as political stability and fiscal policy, combined with global risk sentiment, now exert a far greater influence on the economy and the rand’s value than fluctuations in gold prices,” Botha added.

Where gold does have an impact is in its psychological value on shares and the currency, said Jammine. He said that the perception is that South Africa is still a major gold producer and, as people think South Africa will have a large benefit from the metal, there is a psychological advantage for the rand and gold mining shares. 

In addition, said Jammine, because of the way gold miners’ costs are structured, there is a positive ratio in terms of a higher benefit from increased prices compared with rising mining costs.

IOL