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 around $1900 a few years ago down to $1100 and back up to R1900 of late leaves a big question, “Will it be the next best investment when investors take flight from the stock markets and look for what has traditionally been their storage of wealth? Some speculative forecasts are pitching $3 000 for an ounce.
The fundamentals
If you think that gold still has its traditional place as a “safe haven” from risk then you have some options. From a South African point of view gold has the benefit of being priced in US Dollars. This provides a hedge on a weakening rand. So if the rand keeps on weakening the rand price of gold will improve.
Gold does not provide a yield which takes away the power of compounding which the ultimate way forward to growing your investment.
So how can you go about investing in gold?
Kruger Rands These have traditionally been the popular option as they give investors a tangible feeling of wealth. You can touch them and you can move them. They will cost you about 5% on the “buy and sell” and you should also remember that you should account for capital gains tax on the sale.
ETF New Gold ABSA NewGold have a fund which invests directly in the bullion. You get the same return as a Kruger Rand but at a lower cost. You do not have to hold the gold as it is done for you. So no worries over where to store your gold or concerns about it getting stolen or lost. The costs are also much lower at 1%.
ETF in a Tax Free Savings Account What about opening a tax free savings account investing in New Gold? Here you get the full benefits of the gold price (if it moves in the right direction against the rand), at a low cost and you don’t have to pay any capital gains tax on disposal.
Do your homework before considering this as an investment. It is purely reliant on the Rand/Dollar exchange rate and the US Dollar price. It is risky as we don’t know with certainty which way either will move. So, perhaps a portion of your investment will do to diversify.