If the drop in the price of gold, which has fallen by 15% since the beginning of the year and by 27% since the highs of 2011, is a problem for those who have bought it for investment or speculation purposes, it represents an even more serious threat for foreign accounts of producing countries, especially if dependent on yellow metal exports. Among the latter, the collective imagination has no difficulty in including South Africa, which has always been one of the world's leading gold producers.
However, South Africa's relationship with the price of gold has become more complex in recent years, and must be assessed above all in relation to how the price of gold varies with respect to the price of other commodities, primarily imported ones, such as oil.
Indeed, the importance of gold in South Africa's export basket has remained high in terms of total export value, but oil has come to acquire an even greater weight in the import basket. In theory, therefore, the damage caused by the drop in the gold price would be offset by the benefit of cheaper oil imports, improving South Africa's external accounts.
Murat Ulgen and Di Luo of the HSBS bank tried to quantify the aforementioned benefit (assuming a variation of about 10% of the two prices). According to their calculations, a $100 drop in the average price of gold would result in lost export revenues of $0,7 billion, or 0,2% of GDP. Conversely, a $10 decrease in the price of a barrel of crude oil would save $2 billion on total import spending, or a gain of 0,5% of GDP. The net result therefore depends crucially on the degree of correlation between the price of the two commodities.
Unfortunately for South Africa the trend in the price of commodities has not been uniform. The price of gold tends to diverge from the price of oil, with the latter not experiencing the same decline. The net result therefore certainly plays against the country and has repercussions on a current account deficit forecast for this year at 5,3% of GDP.
However, some factors tend to mitigate the negative scenario that is looming for South Africa. However, the weight of the gold segment in South Africa's mining sector has been in decline for forty years. In fact, the country has gone from a production exceeding 1000 tons in the 70s to a production of 167 tons for the past year, losing the status of first world producer boasted until 2007. It currently settles in fifth position after China, Australia, the United States and Russia. This has led South Africa to diversify its ore exports, favoring iron and platinum group ores as a substitute for gold.
The fact that the latter, like oil, have mainly industrial applications should ensure that their prices trend more in line with that of oil. This should mitigate the impact on the balance of payments of the now existing asymmetry between oil and gold prices.
