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Gold and Krugerrands attract investors

A higher gold price, weak rand and continued uncertainty make physical gold more popular.
Around 60m Krugerrands are hidden in safes and cupboards or being actively traded around the world. Picture: Bloomberg

The recent good results from gold mining companies have focused the attention on the quiet increase in the gold price to the highest level in five years, as well as the weakening in the rand against the dollar to the worst levels since 2016. Gold coin devotees would have noticed that prices of their beloved coins – in rand terms – are setting new records.

Read: The investment prospects of gold mines

The gold price has increased from around $1 150 per ounce in November 2015 to more than $1 526 this week, the highest in more than a decade, except for a few days in August 2011 when gold exceeded $2 000 per ounce. The decline in the rand over the same period has seen the rand gold price increase to a record of nearly R24 000 per ounce compared to just over R7 000 at the beginning of 2010.

Rand gold price over five years

The world’s most popular gold coin, the Krugerrand, has obviously mirrored this increase.

It also raises the question whether it is still worthwhile to buy a few coins after the strong rally of the last few months.

Steve Hatton, media liaison officer of Investgold, says there has been a noticeable increase in people asking about gold and silver coins, as well as investment opportunities in small gold and silver bars.

“It is difficult to determine if this is due to higher precious metal prices and expectations of continued strength in the market, or due to the weakening in the rand and political uncertainty in SA,” he says, adding that physical gold also serves as a hedge against volatility in the stock market and prices of cryptocurrencies. “Whatever the reason, we have seen an increase in sales over the last few months.” 

Hatton says Investgold sells up to 5 000 coins per week.

He refused to be drawn on the outlook for the gold price over the next year or two, bar saying that prospects look promising due to global uncertainty. “I hear more talk about gold going to $2 000 per ounce than before.

“But the main reason people are looking at gold and silver coins is because local investors are effectively buying protection against a further depreciation of the rand.”

Hatton points out that physical gold is a source of comfort in times of political uncertainty.

Investors bullish

Figures from stockbroker IG indicate that most of its retail clients expect the gold price to continue to increase. Senior analyst Shaun Murison mentioned in a recent research report on the prospects for gold that IG clients are mostly bullish on the short-term outlook for gold, with 72% of those with exposure to gold holding long positions.

The trading platform makes provision for short positions as well, giving the 28% of clients who expect the gold price to fall from current highs the opportunity to trade their views as well.

Murison says there are enough reasons for the increase in the gold price during the last few months. Gold increased 25% in dollar terms since August last year due to perceptions that the US Federal Reserve will maintain it dovish stance, perhaps lowering rates more aggressively than originally anticipated, he says.

“The prospect of lower rates has seen bond yields falling and gold, which generally has an inverse correlation to US bond yields, rising. Lower bond rates usually sees a weakening in the dollar – that is also good for gold.”

Predicting the gold price

Nobody argues that predicting the gold price is so difficult as to be near impossible. It is noteworthy that none of the executives of the large SA gold mines that announced their results during the last few weeks wanted to chance a prediction.

Luckily the World Gold Council is paid to do just that. The organisation published its mid-year review for gold a few weeks ago under the rather sensational title of ‘Heightened risks meets easy money’.

“The first half of 2019 proved quite eventful for financial markets,” states the review. “Stocks retraced the losses of the last quarter of 2018 by the end of April 2019, only to fall back again in May.

“At the same time, central banks across the globe have signalled a more accommodative stance bringing global bond yields to multi-year lows, and in some countries to all-time lows. Investors looked to balance high stock prices with an increasingly uncertain environment, leading to a surge in the gold price.”

Rallies and pullbacks

World Gold Council analysts believe financial market uncertainty and accommodative monetary policy will likely support gold over the next six to 12 months, but that investors should be prepared for rallies and pullbacks.

The council notes that investors seem to have been more bullish thus far in 2019. This is evidenced by the positive inflows into gold-backed exchange-traded funds (EFTs) and higher net long positions in futures and commodity markets. “In addition, central banks reported net purchases of approximately 247 tons of gold (equivalent to $10 billion) in the year to date,” says the report.

Of interest is that the council noted that the gold price is currently lower than it was in the period during which central banks were tightening monetary policy. It should be much higher during periods of lower interest rates.

“Historically, gold yields return more than twice their long-term average during periods of negative real interest rates – like the one we are likely to see later this year,” concludes the World Gold Council.

Conditions are conducive

The gold price generally benefits from low interest rates and a weak currency, whatever currency it is measured in. Both these conditions are present.

Currently, interest rates are falling to such low levels in most countries that it is cause for concern globally, while prospects for the US dollar remain uncertain due to the ongoing trade war between the US and China. Local investors can add the additional weakening of the rand to the dollar.

In short, people will be willing to buy more gold coins – and pay higher prices – when the interest rate is only 2% rather than when it is 6%, even if gold coins earn zero interest. Global uncertainty, as well as local risks with regard to the economy, state finances and politics, might entice more SA investors to look at gold coins.

Krugerrand’s continued popularity

It is interesting that the Krugerrand is still the most popular gold coin in the world, when talking about coins available in one ounce or fractions of ounces.

More Turkish gold coins than Krugerrands have been minted and sold since minting started in Turkey more than 2 500 years ago. However, these coins are not very popular outside of Turkey and the Middle East as they are not minted in standard troy ounce sizes.

It is perhaps even more interesting that gold coins have become increasingly popular in Turkey over the last ten years, due to the instability of the Turkish economy and currency.

Gold has been entrenched in Turkey to such an extent that banks offer cheque accounts backed by bullion, gold coins and gold jewellery.

The Krugerrand is still the most popular among modern coins since its production started in 1967, with estimates that 20% of all gold coins in the world feature former president Paul Kruger’s face and a little Springbok. That equates to some 60 million Krugerrands hidden in safes and cupboards around the world and being actively traded.

There is no consensus among investors on the need – or desire – to hold gold coins or any physical precious metal as an investment.

Financial advisors are quick to point out that gold coins pay no interest or dividends, while coin lovers are equally quick to counter that little commission and no ongoing management fees are payable either.



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What’s not to like?

Returns of 14% p.a. for the last 50 years.

And even better your fund damager can’t take annual fees.

Many KR’s and handful 1 – 3 ct good quality diamonds in traditional cut – – – – – – – a bag of these would not require the input of fund managers or those who spread fear only to benefit from it – – – easy to carry and easy to store in bank vault in Zug.
I don’t need these ‘advisors’ …..

Brilliant “gone awol”….fund damager. I hope its not a copyrighted term because I am going to use it often. Having stopped laughing yet.

Last time I checked, places like Scoin and Investgold charged a handling fee, if they store the gold coins for you (and if you take delivery of the coins, you still pay a ‘handling’ fee equal to 2 years of storage). In my book, that is the same as a fund manager/advisor/administrator fee. You will never get away from paying some sort of fee for anyone you use within the wider investment industry.

I tried .5% in and .5 % out .018 storage fee. I think it is reasonable?

They are only ‘fund damagers’ until you try and do it on your own and get carried out on a stretcher.

I acted on the advice of two separate fund damagers some years ago and on both occasions things just went south from there. Thereafter, for the last 2 decades, I do my own homework and manage my own funds and have never since looked back.

There is just no way you have beaten professional fund managers over 2 decades. Here’s a challenge, put the annualised returns of your portfolio in a comment so that it can be compared. 99% of DIY investors don’t even know how to calculate the proper returns so how the hell can you say you’ve beaten fund managers. What you are also ignorant of is that we have a how quality asset management industry with many, many top-notch investment professionals so please explain to me how a part-timer like you beats them? I’m keen to hear how you exit the market after its declined and return after its gone up!

I would be very careful to pile into gold right now. Both gold and the Rand/$ exchange rates are at high levels at the moment. Therefore, if you buy gold today, you need a strong conviction that the gold price will continue to increase significantly. If markets turn around (global and/or local), one can lose quite a lot when buying at these levels.

Perhaps not.

This could also be the start of a multi-year bull market.

The world has an impossible debt problem. The debt can never be repaid and governments will have to print money to meet their obligations…those lucky enough to owe money in their local currency, that is.

And so all fiat currencies are headed for the scrap heap – not instantly, but over time. Many, like the Argentinian peso will collapse in catastrophic fashion.

So as the only currency without any counterparty risk the prospects for gold (and I think you can add cryptos to that) are excellent.

I agree with your view over the long-term. However, if that is your argument, you should buy gold regardless of the price (within reason off course) and regardless of whether gold is currently in a bull market or not. In my view, you either buy gold to make a return, or you buy it regardless because you think fiat will become close to worthless.

Yep … regarding “the debt can never be repaid..” I wish one of the wonderful economists and fund managers who deride holding gold could explain just how the global economy continues to exist when there is an international debt of$247 trillion?

“Global debt has hit another high, climbing to $247 trillion in the first quarter of 2018, according to a report published Wednesday. Of that figure, the non-financial sector accounted for $186 trillion.
The debt-to-GDP ratio has exceeded 318 percent, marking its first quarterly rise in two years.”

Indeed. I buy it regardless

As Beachcomber has mentioned the unplayable heap of deb, there is now a total of 18 Trillion $ worth of NEGATIVE YIELDING bonds world wide. How will this play out without heartache and tears?

My advice to owners of KR’s is to follow exactly the same strategy as that of Investgold: Sell your KR’s now at peak prices and buy again when gold price drops in future.

Sell and do what with the proceeds while I wait? Bank the money? No.

The value of gold will be in a long-term uptrend for as long as the world is on a fiat currency system. Gold was money before the Nixon shock of 1971 and although it is not official, or legal tender, gold is still money today. In order to be factually correct, we should not see the rising price of gold as an appreciation of the value of gold, but rather as a depreciation in the value of the currency.

Gold should not be seen as an investment per se. Gold is a parking place if one cannot find promising investment opportunities. Gold is a safe, incorruptible form of cash, a safe-haven, that offers protection against devaluation and a stock market that delivers negative real returns.

In order to understand the value potential of gold, we have to understand the modern currency system. The US Dollar, or the Rand for that matter, was a “cheque” that could be exchanged for a certain amount of gold. The Federal Reserve Bank held gold as an asset and issued “cheques”(currency) backed by gold. Things changed in 1971 when it became clear that the USA issued more “cheques” than the gold they held in the bank. This caused a classical “run on the bank” and nations demanded to convert their dollars to gold. They wanted to “cash their cheques”. America unilaterally ended the convertibility of dollars for gold. Nixon closed the gold window. The USA defaulted on its international debt.

Since 1971 the international currency system is simply bouncing cheques exchanged for alternative bouncing cheques. This is why knowledgable individuals prefer the actual gold to the bouncing cheques.

It all comes down to the timeframe of the investor. If the investor wants cash to buy groceries, he will use fiat currency that is legal tender. If the investor wants to save cash for his children, he will hold gold.

We should expect another round of QE in the developed markets. In layman’s terms, QE is a mad scramble to issue bouncing cheques. This will drive a strong and sustained bull market in real money, gold.

Same as having an inverted yield curve.

Don’t be fooled. Krugerrands are VAT exempt, while gold and silver bars are not. Krugerrands or nothing.

what about silver Kruger Rands?

VAT is due on silver KR. Only gold KR is an official currency therefore VAT exempt.

Anecdotal evidence but I dont know any millenials that own gold. While that might sound like a massive wall of demand coming its way, I disagree, its out of fashion with things like Bitcoin. There has been a paradigm shift. Also need to be careful when travelling with gold as freeloading statists have a habbit of confiscating your assets, gold not nearly as fungible as people think. Goodluck luck trying to sell a Kruger at a good price on the go. I speak from experience. FYI , not a crypto shill but Bitcoin is at $10 000 and 10 years old regardless of what you might think. Nevertheless, get your money out the country out of rand and AWAY from government.

Not even Crypto is “away from government”. Between FICA, RICA, FAIS, Twin Peaks, OECD and FSCA you are visible and regulated my friend. Every crypto-wallet or trader has to register and comply with the anti-money laundering legislation. Crypto Exchanges have to “know their clients”. Proof of residence, a certified copy of ID, copy of recent bank statements. Does it sound familiar? Anonymity, the biggest reason to own bitcoin, has evaporated.

Time to go back to a barter system?

A store of value can not be anything as volatile as Crypto.

” … any millenials that own gold.” No. they ‘own’ cryptocurrencies and will tear your throat out if you explain to them that it’s a ponzi scheme.

Hahaha rightfully so, anyone still using the tired argument that its a ponzi! Jokes aside.., they the new money, why fight it?, go with the tide and make bank. Who are you or me to decide what value is? If the millenials want avocado and toast, better plant avocado trees. Hell, even the drug lords in Mexico are now in the avocado farming bussiness.

@beachcomber who wrote “……if you explain to them that it’s a ponzi scheme.”

SMH…another boomer who definitely does NOT understand Bitcoin or how the block chain works !!

Sure, its a ‘ponzi scheme’ – more than 10 years in the making, with hedge funds secretly piling in, and rising in value surpassing all other assets like even Gold etc

Must be the longest, best running ‘pyramid scheme’ I’ve ever heard of !!??

Beachcomber – tell us, did the internet also bypass you by when it came out in the 90’s ???

China and Russia buying huge amounts of bullion, and an expected global recession in 12 – 18 months, a failed SA economy and China and USA facing off.

Instead of JSE mining stocks and Kruger Rands an easier and safer holding option is Newgold ETF directly linked to the gold price.

Sadly I took my 12% profits a few months and now wait to buy again in the dips …

Try buying from Mr Kruger in Moreletta, they don not even bother coming back to one, must really be doing good business!!

beauty is in the eye of the beholder. One could write a piece entitled “Gold Slowly Recovering” along with a graph showing the slide from $2000 to $1100 and the recovery to still being 25% below this decade’s high. But that would not get the gold bulls excited…

@Johan…true !…..except….:

The financial world today is very very different from the last decade !

Gold will be the new benchmark when all these paper tigers start melting in the sun soon

So people are jumping into gold while the price is at an all-time high. Clever!

End of comments.



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