Equity markets experienced one of the sharpest and speediest declines in the first quarter of 2020, only to recover most of these losses in the four months to the end of July. The market moves have been nothing short of breath taking, with the swift action of governments and central banks to provide support in the form of fiscal stimulus and lower interest rates no doubt playing a role in the recovery. This, despite the economic ramifications of Covid-19 continuing to filter through to weak economic data and company earnings announcements.

One of the most significant winners year-to-date in 2020, has been gold. The price of the precious metal has risen 30% in US dollars since the beginning of the year (to the end of July), in the process becoming one of the most talked about trades of 2020. This has driven the performance of gold counters listed on the JSE – many of which are up over 100% since the beginning of the year – leading to them topping the list of best performers on the local exchange. Even long-term gold cynic, Warren Buffett, made news headlines recently when it was announced that his company, Berkshire Hathaway, added shares of Barrick Gold to its portfolio in the second quarter of the year. So, what is behind the sudden interest in the yellow metal? In this article, we look at the history of gold as an investment and what may have been driving the rise in the price of gold in 2020.
So, what can we conclude about gold from the evidence?

The introduction of gold in a portfolio is not guaranteed to improve risk, returns or risk-adjusted returns for every period. Rather, the track record of the precious metal is mixed, and gold can go through long periods of underperformance. The strongest evidence for holding gold appears to be as a safe haven in periods of significant market volatility. In our view, it should be viewed as an insurance policy rather than a core holding. Investors should also be wary of the hype currently surrounding the price movements of gold – after all, as Warren Buffett once famously said: “what the wise man does in the beginning, the fool does in the end”.
Michael Kruger, CFA® Investment Analyst Morningstar Investment Management South Africa

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The SARB’s SA composite leading business cycle indicator improved in June for the first time since the COVID-19 outbreak, coming in at 94.1 index points, increasing by 2.7% m/m, following a revised ‑4.9% m/m decrease in May and a -6.8% m/m fall in April. This is the highest monthly increase since January 2010. On an annual basis, the leading business cycle indicator continued to decrease, falling by -9.1% y/y in June, an improvement from the -12% y/y fall in May. 

This is the 20th consecutive month of negative annual growth, with the slowing decrease reflecting the continued easing of the strict COVID-19 related lockdowns in June. 

Seven of the nine available component time series increased, outweighing the decrease in the remaining two components. With the easing of lockdown restrictions and more people permitted to resume work and travel more freely, the improvement in the composite leading business cycle indicator in June was driven by the increase in the number of residential building plans approved and the number of new passenger vehicles sold. According to NAAMSA, the number of new vehicle sales continued to increase from 12 932 new vehicles to 31 867 vehicles in June. Negative contributions came from a deceleration in the six-month smoothed growth rate in the real M1 money supply and a narrowing in the interest rate spread.
SA continues to have structurally low economic activity with slowing economic growth, as shown by the downward trend of the leading indicator that started in March 2018. The COVID-19 outbreak accelerated the deterioration, exacerbating the weak economic environment. While it may be too early to tell, the leading indicator is showing that the economy may be past the worst effects of the virus. Even with that, however, the indicator may be slow to recover amid a slower reopening of the economy and lack of structural reforms. Active policy reform would help SA to get out of its structurally low growth environment.

Even though the government is implementing fiscal measures to mitigate the economic impact of the outbreak, economic activity continues to struggle, and will continue to deteriorate amid both a lack of structural reform and a slower reopening of the economy. SA’s growth is expected to be negative for the year as a whole, with the severity depending on how long the outbreak lasts. We forecast that GDP will contract by -8.5% in 2020, before increasing by 2.9% in 2021. Unless the government aggressively implements some much-needed structural reforms and policies, economic recovery from the pandemic in SA may take longer.

The leading business cycle indicator is compiled by the SARB and consists of the following sub-indicators:

  • Opinion survey of volume of orders in manufacturing (half weight)

  • Commodity price index for SA’s main export commodities (US dollar-based)

  • Opinion survey of average hours worked per factory worker in manufacturing (half weight)

  • Number of new passenger vehicles sold: percentage change over 12 months

  • Composite leading business cycle indicator for SA’s major trading-partner countries: percentage change over 12 months

  • Number of building plans approved: flats, townhouses & houses larger than 80m²

  • Job advertisements in The Sunday Times: percentage change over 12 months

  • Real M1 money supply: six-month smoothed growth rate

  • Interest rate spread: 10-year government bonds minus 91-day Treasury Bills

  • Opinion survey of business confidence: manufacturing, construction and trade

  • Gross operating surplus as a percentage of gross domestic product

On 31 July 2020, the Draft Tax Law Amendment Bill (“TLAB”) contained a hidden announcement, which may prove to be the final straw for many ex-South Africans who still have retirement investments left in South Africa. The TLAB seeks to legislate to prevent a South African who has exited South Africa’s tax base, to withdraw their retirement funds from South Africa, until an unbroken period of 3 years has passed where that person can prove non-tax residency.
This new test has never been raised in any Budget Speech or policy document. Also, this is a far cry from the current legislation which allows South Africans who have financially emigrated, and specifically concluded the exchange control portion of financial emigration to remove their retirement funds from South Africa upon such emigration being recognized by the South African Reserve Bank. Simply put, you have 7 months to execute a well-planned withdrawal strategy or you will be legislatively prohibited from withdrawing your retirement for at least a very uncertain 3 years.
The Change was Foreseen
Over recent years, there has been a substantial increase of South Africans formalizing their status as “non-resident” from both a tax and exchange control perspective, by using the financial emigration process. With this, many had decided to withdraw their retirement funds from South Africa and invest in a more stable economy.
One of the biggest reasons for the formalization of non-resident status with SARS and SARB was due to the punitive tax regime implemented by government on 1 March 2020, which reduced the foreign employment exemption to R1.25mil. South Africans have been flocking to cease tax residency, where they have met the very specific requirements to do so, to avoid this tax regime.
Unsurprisingly, with so many people having exited and continuing to exit the tax base, government took the decision to crush the outflow by proposing to change the way in which people exit, instead of dealing with the core issue – a punitive tax regime for South African tax residents abroad. This change was proposed in the February 2020 Budget Speech, where it was announced that the exchange control portion of financial emigration would be phased out by 1 March 2021 and replaced with a new system. A system which was set to be more complex, or at the very least more stringent taking into account the wording that was used in February 2020.  We also know Government has been eyeing retirement funds, as there has been various indirect statements made to that effect. This proposed law change now seems to pull all these strings together.


This is indicative that previously and currently one would be able to withdraw their retirement funding when ceasing tax residency, albeit also ceasing exchange control residency. Thus, financial emigration in its current form has been that mechanism to cease residency under both. It would seem that government is more interested in when a taxpayer ceases tax residency over exchange control residency – for obvious reasons.
This gives people until 28 February 2021, a mere 7 months, to withdraw their retirement funds from South Africa before the new regime and new “test” are implemented.
Consult with your tax practitioner for advice as each and every individual must take their own circumstances into account before deciding the way forward. Feel free to contact us at (012) 346-6333,
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Share markets, exchange rates, commodities, international developments, domestic economic indicators

  • By far the biggest announcement that will affect international financial markets going forward was the change in the United States monetary policy, as the economy recovery seems to by V-shaped.

  • According to the US Fed Chair, Jerome Powell, the US will in future follow an inflation target based on an average of 2% - and not target 2% every month.

  • In addition, the US will prioritize employment to inflation, meaning monetary policy will be set to increase employment to achieve at least natural rate of unemployment levels.

  • However, a lot of uncertainty exists as to the exact functioning of the new policy.

  • Nevertheless, at a first glance, this means that interest rates in the US will remain very low for a long period – as inflation will be allowed to overshoot 2% to compensate for periods it undershot 2%.

  • In addition – in the absence of more information – this new monetary policy in the US will not be supportive to the US$ - hence the US$ weakened further in August.

  • When considered in conjunction with very low interest rates and inflation environments in Europe, it means that interest rates will for a very long time be low in two of the world’s largest regions.


  • In the meantime, the GDPNow forecast suggests annualized economic growth of almost 30% in the US in Q3, pointing to a V-shaped recovery following a 31.7% contraction in Q2.

  • China’s economy also showed a V-shaped recovery as the economy grew by almost 55% (annualized) in Q2 following a contraction of 34.7% in Q1.

  • The UK, however, suffered an economic contraction (annualized) of 59.4% in Q2.

  • South Africa is bound to also see an (annualized) economic contraction above 40% in Q2. Initial quarterly results for the primary and secondary sectors and some tertiary sectors (see table below) show contractions ranging between 20% and 80%. But the large trade surplus will support growth.

  • Although CPI picked up to 3.2%, chances remain for another reduction in the repo rate.

  • However, in contrast to the US, who is now prioritizing employment to inflation, the South African Reserve Bank’s (SARB) conservative “inflation character” will rather see unemployment increasing to 50% than inflation breaching the 4.5% target. Although another rate reduction is necessary, the conservative view makes the possibility remote.

  • The Covid-19 infections, which caused the lock-downs and large economic contractions, are still spreading. At a first glance it may seem to be a second wave, but deeper investigation revealed that, at this point, it is due to strong growth in South America rather than a second wave – confirming the view that the virus will spread at different paces in different regions.

    Courtesy: Multivest Economic Division

Dr Ramokgopa indicated that his department and the Development Bank will be undertaking a “roadshow” from next week to discuss the infrastructure initiative. (The Development Bank will actually be administering the government’s infrastructure fund, enacted on Monday last week).  Key takeaways were: 

  • The logic of what government is proposing regarding the development of SA’s infrastructure is compelling. Not only does SA desperately need to renew and expand its infrastructure, but infrastructure offers significant multiplier benefits within the domestic economy.

  • Creating an Infrastructure Fund that is distinctly separate from the National Budget appears entirely appropriate within the SA context.

  • It appears that government has increasingly recognised that partnering with the private sector to develop SA’s infrastructure is critical for the success of the initiative – something that would not have been seriously considered just a few years ago. In fact, Dr Ramakgopa highlighted the importance of private sector involvement to help provide oversight to ensure that the projects are free of corruption.

  • A number of infrastructure projects can move ahead fairly quickly (for example road development), but Dr Ramokgopa highlighted that a lot of work needs to be done in terms of “project preparation” – government has allocated a sizeable budget for this aspect of the initiative. He also flagged that the Development Bank is only now starting to recruit/organise a team of financial/engineering/investment professionals to help with the development and implementation of the infrastructure initiative.


  • Government is willing to consider a wide range of funding options, which may fall under the broad banner of “blended finance”. Some of these are fairly innovative and creative. However, many of these initiatives would require significantly more detail. It is always a concern when the “flow of funds” remains opaque.

  • The presentation highlighted the lack of engineering skill within government, especially at a municipal level. This is going to take significant effort to overcome. Dr Ramokgopa provided a fascinating example of someone within a large municipality having a background in psychology but being responsible for engineering projects. The consequence was that the person approved a road development that cost R7 million per km, but should have cost only R1 million per km, not because of corruption but simply because the person did not have enough engineering experience.

  • There is concern about the demise of SA’s construction sector, which has declined in 12 of the past 13 quarters, with many large construction companies going out of business.

  • Dr Ramokgopa and his team are well aware of the concerns surrounding the likelihood of corruption and mismanagement accompanying this infrastructure initiative. In response, Dr Ramokgopa is suggesting that more vigilance and oversight will be applied to all the projects, with an open/transparent tender process, and that by involving the private sector in some of the initiatives this will also help with ensuring better project management. Unfortunately, I think it is going to take much more than this to ease concerns.

  • The extreme bureaucracy involved in trying to move ahead with investment projects in SA was acknowledged and efforts are being made to simplify the process.

  • Changing Regulation 28 of the Pension Funds Act as a way to help fund the infrastructure initiative was discussed, but with very little detail provided. (The political authorities, in general, appear reluctant to fully discuss this proposal).

Overall, the presentation was interesting and very useful. Dr Ramokgopa is clearly willing to engage openly on the best way to proceed as well as answer investor concerns regarding the initiative. It is also clear that the private sector and development finance institutions (DFIs) are critical to its success. However, I think government has been guilty of again overstating the progress that has been made in project preparedness, and the process of trying to develop a wide range of infrastructure projects is probably going to take much longer than has been conveyed by the authorities.  


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