Gold has always been a storage of wealth. The lustre of gold has attracted investors for centuries. Over the best part of the last decade, however, it seems to have lost its shine. Peaking at levels just under $1800 an ounce a few years ago in 2012 to around $1100 of in 2014. The big question is, “Will it be the safe haven when investors take flight from the stock market and look for what has traditionally been their storage of wealth?

There are some very good reasons to consider gold as part of your portfolio.

The ups……..                                                                                                             There seems to be an upside on gold. It is has turned the corner from its low to levels in the upper $ 1200s presently. This points to a latent appetite for the precious metal as investors are not being compensated for the high prices they are paying for their shares relative to the returns received.

Rand hedge on offer…….
The rand value of gold improves if our currency weakens. So if you are concerned about our rand sliding further into the abyss with all the political and economic problems we are facing then you will certainly benefit. If the dollar price of gold moves upward and the rand weakens then the rand value will certainly be worthwhile.

The downs……..
The rand tends to surprise. Just when you think it is on a path to nowhere, it turns a corner just like of late when it strengthened from R17,00 to the dollar breaking into the range of R12,00. The recent political events leading to our downgrade weakened the rand back to levels of R13,50. Somewhat surprising, as one would have expected it to free-fall much further. This again shows how unpredictable our currency is.

No compounding…….                                                                                                 Gold on its own does not provide a yield. Therefore, there is no opportunity for compounding returns into the future which is how the growth of your investment is enhanced. If you buy gold in the form of coins or exchange-traded funds, then you rely entirely on the price movement and the currency differential. So it boils down to the rand price of gold over time. You can buy gold shares, however, but then you need the mine to make a profit before it pays you a dividend. There are some unit trusts which invest in gold shares and the yield, if any, in these portfolios can be reinvested and compounded.

Do your homework and take a longer view with gold. It does look attractive at the current levels given the aversion to risk which is taking place in the markets coupled with the downgrade and the possible weakening of the rand over time.

As we are still on the precipice of a downgrade relying on one rating agency – Moody’s to keep us from falling into ‘Junk’ status we should be well aware of the possible outcomes of losing our investment status. This situation is in the hands of our leaders and we have very little we can do about it. We certainly waited far too late to remedy things to avoid our credit status.

Don’t make the same mistake with your personal finances which we can control.. You should be well ahead in your ability to service your debt even in the face of a sharp rise in interest.
Essentially, rating agencies assess countries’ ability to service and repay their loans. This provides investors and lenders with assessments of the associated risks in dealing with that country. Your personal money lenders do the same thing. They stringently assess your ability to afford your debt using key factors which provide a credit rating.

Start with your personal credit rating which you can get for free from various online credit bureaus.
Update your personal balance sheet and quantify your debts taking a hard look at your exposure to debt.
How easily can your income cover the cost of the debt, this is an important question. Taking into account a sharp rise in interest rates.

Work on having more disposable income by living well under your means. Buying a home or car which you can comfortably afford leaves more money behind each month. It is here where you will find the money to build up your savings and cash reserves.

Reducing your dependency on debt and increasing your savings will improve your credit rating and avoid a personal downgrade.