Precious Metals: Importance of Gold to Investors in South Africa

From the ancient times to modern days, gold has preserved its title as a precious, high-value metal.  In South Africa, gold has established itself as a prestigious commodity and it even works as a sort of global currency.  Due to its unique physical qualities and its ability to hedge against negative changes in the forex prices of the South African Rand, this precious metal is an object of beauty and a store of value for many investors in the region.

In South Africa, gold was first mined in 1886.  The earliest mining excavations were conducted in the regions surrounding Johannesburg and gold would soon became the mining industry’s most critical sector.  Today, South Africa possesses nearly 50% of all known gold reserves in the world, with many of these reserves located in the regions of the Free State and the Rand.

World currencies like the U.S. dollar have an inverse relationship with gold prices, so the prevailing gold valuation is often reflective of economic conditions in the U.S.  For this reason, South African investors are generally watchful of the underlying macroeconomic trends in gold prices.  Here, we will look at some of the ways gold is beneficial to South African investors.

 Gold as Protective Hedge 

Markets do not always move as investors might expect, thus posing a potential risk to their investments.  To safeguard against losses, investors strike a balance between risks and returns. There is a negative correlation between the dollar and the gold price. Investors turn to the yellow-metal to guard against declines in the greenback value. 

According to many experts in the financial markets, gold prices reflect inflation expectations in the global markets.  Unlike some commodities, gold is transportable, durable, and universally acceptable.  As a result of its long history of stability, a rise in inflation will often inspire South African investors to start buying gold. 

Investors often buy gold, either to profit from its appreciating price value or to hedge against a potential weakness in the South African Rand. For several reasons, many portfolio managers recommend the inclusion of gold in every long-term investment portfolio.  In an asset portfolio, gold is the best hedge option because it is uncorrelated with many financial assets.  

Gold as a Safe-Haven

South African investors often seek safe-havens to limit risk exposure in times of market downturns.  Historically, the yellow metal has performed better than other financial assets in times of economic turmoil.  As a result, investors prefer gold as a safe-haven due to its proven ability to retain its value, unlike most equities. 

Historically, the yellow metal has increased during periods of economic recession.  In the 2008 global financial crisis, the role of gold as a safe-haven was significant for South African investors and the value of gold rose by 12.8% during the following year. 

Gold as Direct Investment

Political stability, risk events, and growth prospects influence gold prices.  As a result, global demand for gold is on the rise. Purchases of gold jewelry by India and China could rise by 10% in 2019.  Last year, central bank purchases of gold were up by 68% compared to 2017. With few open gold mines in the world and increasing demand, the value of the precious metal will continue to rise for South African investors.

With uncertain global economic conditions and limited suppliers, gold prices are likely to continue rising.  The political situation arising from Brexit will likely sway inventors to safe havens and the effects of a strong U.S. dollar could last for some time before inflationary pressures build.  Recently, gold prices have moved higher with many market forecasts suggesting further increases in 2020.


For South African investors, gold has proven to be a good hedge during periods of inflation as it stands out as a preferred portfolio diversifier.  Gold is uncorrelated with other financial assets ordinarily held by investors.  From an investor’s point of view, demand for gold is on the rise and higher gold prices will likely create beneficial advantages for South Africa’s large number of precious metals mines. 

Author bio:

Richard Cox is an active investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine. Market commentaries implement advanced technical analysis techniques to trade macroeconomic trends in foreign exchange, global index benchmarks, options, and the entire precious metals complex. Trading strategies generally adopt time horizons of one to six months. Follow his investment commentaries at and

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