Why gold should form part of any plan to go off-grid

As recent events in Russia and Ukraine have demonstrated, gold is a safe haven asset deserving of a place in most portfolios.
Image: Chris Ratcliffe/Bloomberg

Gold came within a whisker of $2 000/oz last week when Russia invaded Ukraine, proving once again its resilience in times of geopolitical stress.

Though it pulled back from these levels, on the charts it has made a decisive break that suggests $2 000/oz and potentially higher prices are now within reach.

“Gold is traditionally seen as a hedge against inflation and as a store of value at a time when fiat currencies are depreciating in value,” says Rael Demby, CEO of The South African Gold Coin Exchange (SAGCE) and The Scoin Shop.

US banking group Wells Fargo recently put a price target of $2 000 to $2 100/oz for the 2022 year-end, despite expectations that the US Federal Reserve will start hiking interest rates in March.

Gold price in US dollars

Source: ShareMagic

Wells Fargo’s investment strategy analyst Austin Pickle notes that gold typically bounces when the Fed hikes interest rates. “Interestingly, gold, after struggling in the months leading up to the initial rate hike, has tended to rebound higher — and even outperform the S&P 500 Index — in the months following. In other words, we believe gold can still shine in the shadow of Fed rate hikes.”

The massive monetary stimulus packages announced by US President Joe Biden have produced US inflation rates of 7.5% against less than 5% in SA – the first time in decades that SA inflation is below that of the US. The spike in commodity prices such as oil, nickel and palladium will start to bleed through in terms of higher consumer prices, and that will also reflect in higher gold prices.

Demby says South Africans are being forced to confront going off-grid for a variety of reasons, and adding gold to a responsible portfolio, as they are concerned about the risks of inflation and currency debasement.

Going off-grid

“When we talk about going off-grid, we are talking about private education, private security, acquiring a generator so as not to be dependent on an unreliable electricity grid, or water tanks to collect rainwater as a hedge against possible water shortages. All of these are steps people take to go off-grid to a greater or lesser extent. Gold makes sense for anyone concerned about the financial risks of living in SA, where inflation has eaten into traditional savings at the rate of 6% to 10% a year over the last four decades,” says Demby.

Bitcoin (BTC) may have taken some of the shine off gold in light of its perceived role as a digital store of value, but Demby points out that gold has outperformed BTC since the start of the year.

“Gold has an history dating back thousands of years, whereas BTC has been around a little over a decade. The durability of gold as a store of value is unrivalled. It is recognised as money anywhere in the world and now fintech solutions like TroyGold have arrived to address some of the more common complaints against it – for example, that it does not easily permit fractional ownership, or cannot easily be used as collateral for lending.”

The smallest gold coin available is a one-tenth ounce Krugerrand, currently selling for about R3 760. A full one-ounce Krugerrand can be purchased for R31 700 (at day of writing).

The South African Gold Coin Exchange is a 50-year old brokerage that specialises in the buying and selling of precious metal coins, numismatics and bullion. The Scoin Shop is its retail division, with a national footprint.

Is it too late to buy gold?

A common argument against buying gold is that prices have already gone too high. Demby says this argument is erroneous and is designed to keep people out of any asset in a bull market. “We are in a major bull market for gold and for many other commodities, but it is clear we are in the early stages of a bull market. For those who believe prices have gone too high, that argument would sound ridiculous if the price were to double from here. A smart way to invest in gold is to rand cost average, and make regular purchases, such as each month or couple of months, and not pay too much attention to the daily fluctuations in price.”

Securing your gold

SafeGold is a premium safe custody option offered at roughly R120 a month, regardless of the number of coins stored. The coins are stored in a secret location, and insured against loss.

“This is a unique safety storage solution, as your locker is limitless [and] we don’t charge you per item stored, allowing you to safely secure your entire physical gold bullion and numismatic collection with us, anonymously,” says Demby.

Diversification

Another argument against gold is that it does not generate interest or dividends. That’s no longer true. Fintech companies have introduced ways of lending gold to earn a return, all in a safe and transparent manner. The South African Gold Coin Exchange and TroyGold have partnered up to bring gold out of the dark, and into the light.

“Many of the arguments against gold have fallen away, but perhaps the best reason to own gold is that not only is it a hedge against inflation and uncertainty, but you should diversify your portfolio by spreading your investments across different asset classes,” ,” says Demby.

“Gold is certainly an asset class that should be considered in any responsible portfolio.”

Brought to you by The South African Gold Coin Exchange and The Scoin Shop.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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