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 and 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 upside on gold. It is has turned the corner from its low to levels in the upper $1200’s 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 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 on 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.