Gold is back in vogue. Nearly two decades ago, the words penned in the Budget Review signed by the then finance director-general and now governor of the central bank, Lesetja Kganyago, have a “current” feel to them.
“The platinum price reached $1,081 per ounce [in January 2006]”, read the review, “from $472 in January 2002.”
Similarly, the review further suggested: “The gold price has risen by 60% [since 2000]”. It was indeed boom time.
It feels like we are there again. Gold and palladium are experiencing a rally. By the time you read this, the gold price may be nearing $3,000 an ounce, buoyed by lower interest rates and geopolitical tensions. Market watchers say that the US election this week may raise the price even further.
Central banks, it seems, have been a key driver of the rally. Gold, we are now told, makes up 11% of the reserves held by central banks, up from 6% in the global financial crisis in 2008. SA’s central bank has kept the gold in its balance sheet virtually unchanged between 2021 and 2024.
It has held the same level of gold in volume terms (about 4-million fine ounces) for the past year, yet the value of its gold holdings has ballooned. In September 2021, the associated rand value of these holdings an ounce was R26,178.28, and it rose to R35,243.61 an ounce two years later. In September this year, the value of the same holdings, stood at R45,386.08 an ounce.
Favourable gold prices, across multiple episodes in the economic history of SA, have been the “trigger” for wide-ranging social and economic change. It was the need to mine erstwhile “uneconomic” ore bodies that made labour supply shortages acute to the point of triggering the reorganisation of the social life of the countryside. Taxation was a means of dispossessing African people and necessitating widespread labour migration.
So, too, was the surplus cash from rises in the dollar price of gold, in the 1930s and the 2000s, used for particular public investment and “class formation”. So too dams, roads, railway lines, steel and power plants built in the 1930s and the late 1970s. Yes, SA, might not be a dominant producer of gold globally, but commodity windfalls still matter.
The “good times” they underwrite also similarly subsidise the formation of different classes at different moments. The white capitalist agricultural class in the 1930s spawned by the “co-operative movement” was cushioned by “export bounties” that protected them from falling world prices of wool, sugar, hides and tobacco. Gold further underwrote the creation of an African homeland elite and tricameral politics in the early 1980s.
Expenditure by Pretoria grew from about R9.9bn in 1978/79 to about R20bn in 1982/83, as an ounce of gold rose from $226 in January 1979 to more than $650 in September 1980. It is also clear that the favourable commodity price environment in the 2000s made possible the 15% increase in the number of workers in the public service in 2006-17.
Questions arise over what, if anything, a similar windfall would be used towards in this phase. The medium-term budget that minister Enoch Godongwana delivered assumed that the gold price by 2027 may stand at $2,712.8 an ounce (R47,663.90), with a similar rally expected on platinum and palladium prices.
The budget office ventured a perspective in the Budget Review about what it anticipates such a windfall may cause — “4.2% growth in the medium term in gross fixed capital formation”.
One hopes that the “national dialogue” may also attend to what “mix” of capital spending at different levels of society may make good of the harvest. So that those “decisions” become not just a matter for credit committees and the risk-return judgment calls of financiers but a basis for public discussion. Absent this, we may fail to “make hay” while the sun shines, while regretting that we know the bare winters all too well.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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