A 3 Decade Look At South African Inflation In The Eyes Of Gold

in LeoFinance2 months ago

Hey Jessinflationsts

Let's get this out first; I am not saying inflation is a bad thing; in some cases, it's a good thing when used sparingly to help stimulate economic growth and assist increased GDP.

This perhaps was the case for South Africa as it came out of apartheid. As we modernised many of our operations, so too did we fall for many of the financial engineering tricks that central bankers and governments use worldwide.


As someone who earns Rands for a living, spends them and saves a portion of their wealth in this currency, I have a vested interest in its ability to hold value. I've always been sceptical of the currency, I think every South African in their right mind would be, so I like to do calculations from time to time.

Some say gold is the truth; some say bonds are the truth, or rather as close to the truth as you're going to get. So I thought let's have a look at how South Africa has performed when compared to gold.

Screenshot 20201228 at 16.48.23.png

Source: goldprice.org

Note: The gold price is based on the average closing price for that year


YearGold PriceZAR/USDGold Price ZAR% Change
1990$383.73ZAR 2.59ZAR 993.86N/A
1991$362.34ZAR 2.63ZAR 952.95- 4.12
1992$343.87ZAR 2.89ZAR 993.78+ 4.28
1993$360.05ZAR 3.19ZAR 1 148.56+ 15.57
1994$384.16ZAR 3.42ZAR 1 313.83+ 14.39
1995$384.07ZAR 3.63ZAR 1 394.17+ 6.11
1996$387.73ZAR 3.95ZAR 1 531.53+ 9.85
1997$331.00ZAR 4.42ZAR 1 463.02- 4.47
1998$294.12ZAR 4.98ZAR 1 464.72+ 0.12
1999$278.86ZAR 6.15ZAR 1 714.99+ 17.08
2000$279.29ZAR 6.39ZAR 1 784.66+ 4.06
2001$271.19ZAR 7.77ZAR 2 107.15+ 18.07
2002$310.08ZAR 11.47ZAR 3 556.62+ 68.79
2003$363.83ZAR 7.91ZAR 2 877.90- 19.08
2004$409.53ZAR 6.71ZAR 2 747.95- 4.52
2005$444.99ZAR 5.85ZAR 2 603.19- 5.27
2006$604.34ZAR 6.28ZAR 3 795.26+ 45.79
2007$696.43ZAR 7.39ZAR 5 146.62+ 35.61
2008$872.37ZAR 7.99ZAR 6 970.24+ 35.43
2009$973.66ZAR 10.32ZAR 10 048.17+ 44.16
2010$1,226.66ZAR 7.46ZAR 9 150.88- 8.93
2011$1,573.16ZAR 6.91ZAR 10 870.54+ 18.79
2012$1,668.86ZAR 7.59ZAR 12 666.65+ 16.52
2013$1,409.51ZAR 9.11ZAR 12 840.63+ 1.37
2014$1,266.06ZAR 10.79ZAR 12 669.42- 1.34
2015$1,158.86ZAR 12.26ZAR 14 207.62+ 12.14
2016$1,251.92ZAR 15.23ZAR 19 066.74+ 34.20
2017$1,260.39ZAR 12.37ZAR 15 591.02- 18.23
2018$1,268.93ZAR 14.46ZAR 18 348.73+ 17.69
2019$1,393.34ZAR 14.05ZAR 19 576.43+ 6.69
2020$1,771.90ZAR 14.60ZAR 25 869.74+ 32.15

Running the numbers

If we take the increases and decreases, add them up and divide them by 29 years the average increase would sit around 12% a very alarming percentage when we take into consideration my previous calculation of inflation based ONLY on the increase in broad money from the South African reserve bank.

When we factor into this the fact that gold itself as an inflation rate of around 2%, then over 30 years your absolute purchasing power loss would be even more.

Gold it's not a perfect measurement, so factoring that increase you'd have a measure of something like 18% increase, which is astronomical destruction of savings over a 30 year period.

Has GDP increased in South Africa over the last 30 years? The increase in labour markets after apartheid, the opening up of trade with other countries, the increased productivity from machinery and technology have all been wildly deflationary and helped kept the inflation genie in the bottle.

I realise the numbers are by no means absolute and if you are statistical, please feel free to shoot holes in the calculations, but regardless of what I get wrong. I think what I get right here is an alarming rate of increased debasement.

Humour me for a second

Let's say for the sake of calculations that your capital cost is 12%, that's the cost of holding cash each year. If you are to increase your wealth, you first need to beat that decrease before you even think about making a profit.

How many investment opportunities out there are kicking off 12% returns APY?

I would imagine very little, real estate, stocks, bonds in South Africa should theoretically be a negative return since you take your profits in Rands and on top of that.

You need to pay tax on those returns, knocking off additional margin making it even less probable that you're going to return an absolute increase in purchasing power YOY.

Taking losses like that each year quickly compounds over time, especially if you're unaware of how powerful compound losses can be. People are so focused on becoming nominally rich that they're willing to accept becoming purchasing power poor.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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That's a lot of purchasing power to lose every year 😠

Then we wonder why people are falling into poverty each year, they know exaclty what they are doing and people are letting themselves get robbed

from 2005 to 2006 and 2019 to 2020 the price of gold a massive pump! i am very interested to learn why! possibly an economic crisis and the pandemic played its role

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In 2019 we had really bad power cuts and the country was losing like 50 billion in productivity because of, I can't remember what 05 and 06 were about but I am sure its self inflicted wounds

ahh i see, everything comes together now :P

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