South Africa Foreign-Currency Reserves Drop as Gold Falls

South African gross gold and foreign currency reserves fell for a third month in May as the price of bullion dropped and the dollar strengthened, reducing the value of reserves held in euros and pounds.

Gross reserves declined 2.1 percent from a month earlier to $48.9 billion, the Pretoria-based Reserve Bank said on its website today. The median forecast in a Bloomberg survey of six economists was $48.8 billion. Net reserves declined to $47.7 billion from $48.8 billion.

“The decrease in the gross reserves was primarily due to significant valuation adjustments associated with the decline in the market price of gold and the substantial appreciation of the U.S. dollar against other major currencies,” the central bank said in the statement.

The central bank has been buying reserves to help moderate swings in the value of the rand. The South African currency has declined 2.7 percent against the dollar this year, adding to an 18 percent drop in 2011. The rand gained 12 percent against the dollar in 2010 and 29 percent in 2009.

The volatility of the rand creates problems for setting monetary policy and isn’t “helpful for the real economy,” Gill Marcus, the bank’s governor, said in a May 8 speech in Zurich. While the central bank has been active in the foreign-exchange market to build its reserves, it doesn’t try to set a level for the currency, she said.

Gold Reserves

Gold reserves, which account for about 13 percent of gross holdings at the central bank, dropped $390 million to $6.3 billion. The price of gold slumped 6.3 percent in May, reaching as low as $1,526.97 an ounce.

The rand traded at 8.3120 per dollar at 11:55 a.m. in Johannesburg, compared with 8.3096 before the data was released. The yield on the 13.5 percent bond due 2015 fell 2 basis points, or 0.02 percentage points, to 6.25 percent.

“Uncertainty in financial markets and weaker growth prospects are likely to persist in the short term,” Nedbank Group Ltd. (NED), South Africa’s fourth largest bank, said in e-mailed comments. “This will keep the rand volatile, with downside risks. In this environment the Reserve Bank’s ability to accumulate foreign exchange reserves will be limited.”

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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