Abstract
M.Com. (Economics)
The gold sector has historically made an extremely important contribution to the total
external revenue earnings of South Africa. Gold is traded on the international markets at a
price which is determined daily through supply and demand and quoted in American dollar terms. South Africa is one of the largest producers of gold in the world and despite this it has no control over the international gold price. Local producers get paid in rands for their production. Because the international gold price is determined in American dollar terms and local producers get paid in rands the exchange rate is extremely important to local gold producers.
If the dollar/gold price is compared to rand/dollar gold price in the long term there is a
definite pattern. From 1980 to 1990 it can clearly be seen that if the gold price rises or
declines the exchange rate has depreciated or appreciated. Since 1990 the dollar/gold price declined steadily until 1993 when it recovered somewhat. The rand exchange rate has not in the past depreciated in relation to the decline in the gold price. A sharp depreciation of the rand since 1990 has been experienced. The question that arises is that has the deviation in the long term relation between the rand/dollar exchange rate and the gold price since 1990 just been temporary in nature or was there a fundamental change? Since 1990 the dollar/gold price has declined from American $383.55 to $324.86 in October 1997. Over the same period the rand has depreciated from 258.17 cent to 470.90 cents for a dollar. Over the whole period the rand has hardly shown signs of appreciation whilst there were sporadic increases in the gold price. Government policy changed in 1990 and the focus moved to inflation control. A sharp increase of nett capital from South Africa was noted since 1990.