Gold’s rise and fall – and the rand

Gold is back in the news again – but for the wrong reasons this time. Up until very recently, it has been an incredible ride for gold. In fact, gold has been a shining beacon the past couple of years, setting new all-time records in both price and output: In 2011 we saw bullion reach an all-time high of $1920.94 per ounce. And 2012 saw the market consolidate above $1525 per ounce and record the highest year-end price together with the largest global gold production ever. But in recent months, gold has started to lose its shine, with April 2013 going down in the record books for having the largest two-day drop in gold’s price since 1980. The sharp sell-off saw it lose a full 14.7% of its value, and brought bullion down 20% off its September 2011 peak. The natural reaction to this, of course, is that such a dramatic price movement must surely impact the South African economy and the rand… After all, South Africa has been and is a commoditybased economy which is closely aligned with gold, and its fortunes (together with the rand) rise and fall with gold, as they have since...well, almost forever. This is a known, a given, a fundamental rule of the game. And that is why we have seen rand weakness. Or is it? If this is what you truly believe, you are living in the past, and the inserted chart will be a big eye-opener. It reflects the gold price against South African gold export volumes in Troy ounces and as a percentage of total exports, and below that three pie-charts showing South Africa’s share of global gold production in 1970, 1990 and 2012. These charts show a very telling story: Historically gold did have a significant impact, being the backbone of our economy and making up a large chunk of our export volumes. But times have changed dramatically over the past 40 years and gold’s favourable shine on the economy has dimmed. The truth is that, apart from a sentimental association – a fond lingering remembrance of being top of the pile in the global gold stakes – gold has very little impact on the current economy and the rand! The rand has weakened, yes, but this is not because of gold. In fact, our forecasts predicted this move weeks ago, based on the patterns of mass human emotion that have been showing up in the price movements of the market. For more details and updated forecasts, go to www. ForexForecasts.co.za/go/ ZAROutlook.