DB-FX Daily ZAR：Not all that glitters is gold-20251001

Terms of trade have been flagged as a bullish factor for the rand, especially goldprices. We are less convinced.

South Africa's terms of trade has indeed been strong, helped by a combination offalling oil prices and record highs in gold. Our commodity export price index forSouth Africa, which incorporates a weighted basket of its main commodity exports,currently points to the currency being quite cheap (figure 1).

The problem is when you consider how terms of trade gains should transmit to thecurrency. The first of these is an improving trade balance. But South Africa's tradebalance is nowhere near as strong as the last big rally in commodity prices after2021 (figure 2). Slightly better domestic demand is one reason, but another is thatdespite the rally in gold, South Africa's overall commodity export prices aren't ashigh, due to platinum group metals prices being more subdued (figure 3).Compounding this, South Africa continues to fail to take advantage of a strongcommodity price outlook by boosting mining production volumes. These continueto track well below pre-COVID levels due to supply side constraints (figure 4).