The South African rand hit its strongest level against the dollar in 3-1/2 years on Monday, boosted by record precious metal prices and optimism about the country's economic outlook.

The rand struck 16 per dollar for the first time since June 2022, before slipping slightly to trade at 16.03 at 1200 GMT.

The global gold price surged to an all-time high above $5 100 an ounce as central banks and investors sought refuge from geopolitical risks and market volatility.

Gold and other precious metals like platinum, which also set a record high on Monday, are major South African exports.

Their rally helped the rand gain about 14% against the dollar last year and more than 3% so far this year.

INVESTOR APPETITE TOWARDS SOUTH AFRICA HAS TURNED

South Africa's economy struggled with slow growth and rising debt for more than a decade until last year, when investor appetite suddenly improved as economic reforms started to bear fruit and the fiscal trajectory brightened.

Fund managers say there has been a broad re-rating of South African assets, after years of underperformance.

Government bonds have been among the strongest performers, with benchmark 10-year yields falling to their lowest levels since 2019 and slowing inflation a key tailwind.

"We've got one of the highest real yields in the emerging‑market universe, which makes South Africa stand out for global investors," said Malcolm Charles, a portfolio manager at Ninety One.

US bank Goldman Sachs is upbeat on the outlook for South African stocks, saying local interest rate cuts should support economic sectors that have so far lagged.

The Johannesburg Stock Exchange's All-Share Index gained 1.3% on Monday, reaching another record high. The benchmark 2035 government bond firmed, as the yield fell 4.5 basis points to 8.1%.

THURSDAY'S RATE DECISION A CLOSE CALL

Investors' focus will soon shift to South Africa's first interest rate announcement of 2026 on Thursday, which could be a close call.

Eighteen of 26 analysts polled by Reuters expect the central bank to leave its repo rate unchanged, but eight predict a 25-basis-point rate cut to 6.50%.

Some think the bank will take a cautious approach given stronger growth data that reduce the urgency of cutting rates, while others say the rand's sharp move higher and well-contained price pressures create scope for further easing.

Inflation edged up to 3.6% year-on-year in December from 3.5% in November, data showed last week, staying within the 1‑percentage‑point tolerance band of the central bank's 3% target.