Regulators concerned about dormant permits as illegal gold mining surges

The South African Diamond and Precious Metals Regulator has expressed concern over the high number of dormant permits issued to black small-scale jewellers, despite the growing opportunities in the precious metals industry.

The regulator has found that several initiatives aimed at supporting historically disadvantaged individuals to enter the industry have not been fully utilised.

In contrast, the sector is witnessing a surge in illegal mining activities, with “Zama-Zamas” taking advantage of the rise in gold prices. Gold prices have increased by nearly 12% on a year-on-year basis, currently trading at $1 930 an ounce and projected to breach $2 000 by year-end.

Gold is often used as a hedge against inflation, geopolitical tensions, or recession fears. However, while gold serves as an investment asset, its value in the jewellery industry is based on creativity, workmanship, and exclusivity.

Makwe Fund manager Makwe Masilela says, “When you get to an environment where interest rates are low, then it means the opportunity cost of holding that metal is also low, because you are not missing out on other stuff. Now when interest rates start going up and opportunity cost starts increasing also what impacts it is that gold just like other metals is priced in dollars also you have to check, what is happening with the us dollar. and now in an environment where the us dollar is kind of weak, that itself it makes it cheaper for holders of other currencies to be able to afford it, so we need to know that this is non yielding at all unlike other metals that maybe will do well because they get to be used as industrial metals, gold is used as a way of storing value.”

Despite economic challenges, high-end jewellery pieces continue to be in demand. The jewellery industry globally is valued at $250-$300 billion and expected to exceed $500 billion in the next five years. Local designers are also gaining recognition, with partnerships promoting their products both locally and internationally.

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Illegal mining a major challenge

However, alongside these positive contributions to the economy, the mining industry faces a crisis. Illegal gold mining operations have become a major challenge, resulting in the loss of up to 5% of South Africa’s annual gold production to illicit activities.

The owner of NQ Jewellery Nqobile Nkosi says although the economy is battling, high end jewellery pieces are still being bought.

“The jewellery industry globally is sitting on $250 – $300 billion and is set to surpass $500 billion in the next 5 years. So there’s huge demand for high value goods and luxury products. and the jewellery finish store that i own in monte casino is a great platform South Africa for up and coming designers to showcase their designs and sell their products. We do sell most of our goods to international customers because the dollar is in their favour. but we are also seeing, through our partnership with Proudly South Africa, a lot of local people turning up at the Monte Casino to jewellery village to buy our local products which are produced by local designers. For example, we have about 20 small businesses that are supplying through our store.”

While efforts are being made to support historically disadvantaged individuals in the industry, the Diamond and Precious Metals Regulator has observed that many issued permits remain inactive. Access to funding and markets are identified as primary challenges hindering the activation of these permits and addressing unemployment.

GM Regulatory Compliance at The South African Diamond & Precious Metals Regulator Tebogo Motloung says, “Most of them are inactive, which then talks to the structural and systemic challenges that we have. for instance, the issue of access to funding, the issue of access to markets which are primarily the two primary challenges we’re dealing with that are responsible for those inactive licences, so to the extent that we have a large number of them we appreciate that, but again if they are dormant they’re not serving the purpose for which they are supposed to serve in terms of addressing unemployment, that’s the predicament and the challenges that we currently face.”

The outlook for gold remains uncertain, with potential support from a weaker US dollar and stable bond yields. However, challenges may arise if tightening measures continue for longer than expected.