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South Africa's gold legacy: The psychological impact of rising gold prices
Despite losing its title as the world's gold capital, South Africa continues to benefit from the rising popularity of gold as a safe haven, with implications for the local economy and currency
Image: Ai
Despite having lost its crown as the gold capital of the world, South Africa is still indirectly – and psychologically – benefitting from the yellow metal's gain in popularity as a safe haven.
As of 12.30pm on Tuesday afternoon, the precious metal was rising towards $3,340 an ounce, although off its $3 500 record high in April, it is still 'holding up,' as Dr Azar Jammine, director and chief economist at Econometrix, said.
Gold is 'holding up' as its underlying value is a hedge against economic uncertainty, said Jammine.
Speaking with IOL, Jammine noted that gold is still benefiting both the local currency, as well as gold miners. The rand is still flirting around the R17.70 to the dollar level and could drop into the R16 to R16.99 range, according to Old Mutual chief economist, Johann Els.
Gold has a long history in South Africa, which was once the world's biggest gold miner, losing that crown to China in 2006. The fact that it is no longer even in the top ten is, as Jammine said, 'very sad'.
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.
South Africa cannot claim to be gold's oldest source though, as the Royal Mint said that gold was first smelted in Egypt in 3 600 BC. The metal's history includes the first gold coins being struck in what was then Lydia, Asia Minor, in 600 BC.
The Minerals Council of South Africa notes on its website that, even though the Witwatersrand Basin remains the world's largest gold resource, more than half of the South African gold mining industry is 'marginal'.
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The discovery of gold in South Africa in the late 19th century led to the development of Johannesburg, also known as Egoli or the City of Gold, as well as numerous towns near the gold diggings, such as Barberton and Pilgrim's Rest, the Council stated. In the 20th century, significant gold mines were established on the West Wits line, and towns like Carletonville and Klerksdorp became vital centres around the renowned gold mines, it added.
However, the Council said that the prominence of the gold sector began to decline in the early 21st century as mining operations reached deeper levels to access rich reef patches.
At the same time, the gold price experienced a substantial decrease from its previous highs, and the global economy encountered challenges, culminating in the 2008 financial crisis. 'Although the crisis has eased in many countries, the effects on the South African mining industry have been profound and enduring,' it noted.
Joburg's oldest working mine, incidentally, is at Gold Reef City.
Jammine said that South Africa is benefitting from the safe haven appeal of the yellow metal mentally.
The price has a psychological value on shares and the currency, said Jammine. He added 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.
IOL
