IS GOLD STILL A SAFE HAVEN?

Finweek English Edition - - FRONT PAGE - BY SCHALK LOUW Port­fo­lio Man­ager at PSG Wealth

It hasn’t been a good month for gold bulls af­ter the gold price de­creased by 6.4% in US dol­lars, and the JSE Gold In­dex dropped 17% for the month to 20 July. The re­al­ity is this isn’t a new trend. Rather it’s a con­tin­u­ing one since gold had its all-time high in Septem­ber 2011. Since then, the in­dex is 42% lower in US dol­lar, and 68% lower in rand terms.

There is noth­ing spe­cial about gold as a com­mod­ity. And there is most cer­tainly no rea­son this com­mod­ity should be less volatile than any other – li ke plat­inum, cop­per or si l ver. Com­modi­ties are and al­ways will be high-risk i nvest­ments, so don’t let any­one con­vince you that gold is a “safe haven” in your in­vest­ment port­fo­lio.

That said, gold (along with other com­modi­ties) has one at­trac­tion for a long-term, goal-ori­en­tated port­fo­lio: it is a tan­gi­ble as­set. Such an as­set can be very use­ful, as it pro­vides a good hedge against inf la­tion.

If you had been in­vested in gold for the past 40 years, your re­turns would have come to 13% a year. This is an at­trac­tive per­cent­age when com­pared with lo­cal inf la­tion, which grew by 10% a year over the same pe­riod. Of course, there were times when gold strongly un­der­per­formed inf la­tion. But over the long term, it re­mained an at­trac­tive in­vest­ment.

I’m just not con­vinced t hat t he un­der­ly­ing mines of­fer t he same at­trac­tion. If you had in­vested R100 in the gold price – by us­ing some­thing like Kruger­rands – 10 years ago (at the end of June 2005), your R100, af­ter the past four tough years, would be worth only R470 to­day. But had you in­vested the same amount in the lo­cal Gold In­dex, your in­vest­ment, ex­clud­ing div­i­dends, would be worth a shock­ing R49!

For those who now feel dis­cour­aged be­cause of the fact that it is so dif­fi­cult to buy this phys­i­cal com­mod­ity, there is some good news. Dur­ing the past few years, both Stan­dard Bank and Investec have l isted gold (and other com­modi­ties) ex­change-traded notes (ETNs) on the JSE. For those look­ing for ex­po­sure only on the move­ments in the phys­i­cal gold price in US dol­lars, the Investec ETN may be con­sid­ered, while the Stan­dard Bank ETN of­fers you these move­ments in rand value.

There are a few f und man­agers who have a st rong pref­er­ence for gold. Ac­cord­ing to my l at­est data, the Investec Value Fund stands out as the eq­uity f und in South Africa (ex­clud­ing spe­cial­ist re­sources funds) with the high­est ex­po­sure to di­rect gold mines – more than 23% of the f und is cur­rently al­lo­cated to lo­cal gold mines. The Mo­men­tum Value, El­e­ment Earth Eq­uity and Stan­lib Value funds fol­low closely, with their very high ex­po­sure to gold min­ing. Peo­ple who feel gold mines are ready for re­cov­ery can con­sider these funds.

For oth­ers, l ike me, who feel the risks as­so­ci­ated with in­vest­ing in mines are just too high, these funds should be avoided at all costs.

It doesn’t mat­ter which way you look at it, gold will put a sparkle in many an in­vestor’s eyes. But be­ware – nei­ther it, nor other com­modi­ties, are safe in­vest­ments in your port­fo­lio.

THERE IS NOTH­ING SPE­CIAL ABOUT GOLD AS A COM­MOD­ITY, AND THERE MOST CER­TAINLY IS NO REA­SON WHY THIS COM­MOD­ITY SHOULD BE LESS VOLATILE THAN ANY OTHER COM­MOD­ITY SUCH AS PLAT­INUM, COP­PER OR

SIL­VER.

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