South Africa’s gold and foreign exchange reserves remained essentially unchanged in January, increasing marginally to $65.9bn from $65.5bn in December. Similarly, net reserves increased to $61.3bn from $60.4bn over the same period.

Given that the SARB is not actively building its reserves position, the change in reserves is mainly a function of currency movements, the oscillation in the value of gold and foreign exchange payments made on behalf of the government.

The slight increase in January’s reserves valuation was mainly due to a +7.29% rise in the USD price of gold.

On the other hand, an appreciation in the USD (+0.37% against the EUR, +1.18% against the GBP) and foreign exchange payments made on behalf of the government worked to partially offset the effect of a higher gold price, weighing on reserve valuations.

Why does it matter
Ongoing strong foreign exchange reserves are welcome and provide a buffer to shield the ZAR from exogenous shocks.

Additionally, a relatively robust level of foreign currency reserves provides a pool of non-ZAR capital, which reassures ZAR creditors and enables the country to acquire essential imports. Currently, SA has around seven months of FX reserves to accommodate imports.