S-Africa fails to benefit from gold boom despite market surge

(MENAFN) South Africa, once a dominant force in the global gold market, is now only the eighth-largest gold producer, failing to benefit fully from the recent surge in gold prices. While local gold mining shares and the rand have seen a psychological boost, the country’s overall economy has missed out on the financial windfall.

Gold prices reached new highs, surpassing $3,300 an ounce, driven by global concerns over a potential recession, especially in the US amid the escalating trade war with China. This has led to gold being seen as a safe haven, but South Africa, despite its history in gold production, is no longer reaping the rewards.

Dr. Azar Jammine, an economist at Econometrix, pointed out that South Africa’s gold output has significantly dropped from 1,000 tons in 1970 to just 100 tons today, which is a 90% decrease. Countries like China, Russia, Australia, Canada, and the US now produce more gold than South Africa.

Factors such as high operational costs, outdated infrastructure, labor disputes, declining ore grades, and inconsistent energy supplies have all contributed to the decline in South Africa’s gold production, allowing countries like China and Australia to surpass it. Gold's economic importance has diminished, as the country has diversified its economy, with sectors like services, manufacturing, and finance now contributing more to GDP.

While gold still plays a role in South Africa’s export earnings, accounting for about 10%, it no longer drives the economy as it once did. Instead, political stability, fiscal policies, and global economic conditions now play a more significant role in shaping the country's economic outlook and the rand’s value.

Although gold’s economic impact has waned, its psychological influence on the market remains significant. The perception that South Africa is still a major gold producer helps maintain the value of gold mining shares and the rand, offering some indirect benefit as prices rise. However, rising mining costs limit the potential upside for the country from higher gold prices.

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