Go for gold – why it should still be a top favourite
Gold has always been one of the go-to options for new investors, as it is a highly liquid asset and is no one’s liability.
It can further play four fundamental roles in a portfolio – being a source of long-term returns, a diversifier that can mitigate losses in times of market stress, a liquid asset with no credit risk that has outperformed fiat currencies, and a means to enhance overall portfolio performance.
The World Council of Gold in their analysis shows that by adding 2% to 10% in gold over the past decade to the average pension fund portfolio would have both increased returns and reduced volatility, resulting in higher risk-adjusted returns.
Negative returns on investments, no matter how good or how bad, only enforce negative experiences. My conviction has made me largely conservative, with high management costs and low returns.
Today it is easy to fall into negative territory investing. Many investors don’t have sufficient capital to retire on, so they tend to take bigger bets (more risks). When these don’t come off, the pain is excruciating.
How can we be invested in the market and yet have some “insurance?” That sounds like an oxymoron.
Gold is the one asset class that offers and uncorrelated return, that means when other markets are falling, it is rising. It is a hedge against inflation and currencies. All portfolios should have some gold exposure – it is the ultimate insurance.
How has gold performed these last 5 years? The truth is, not well.
In dollar terms, gold has gone from $1300 to $1300. That is zero percentage return.
Gold has been as high as $1921, but it has given that all back again. Why would that be? Simply put, when the equity markets run well, no one wants “insurance” – gold. They want to be fully invested in the market.
The trend in the rand has rallied against the dollar. It made good recovery strides against the dollar. It clawed its way back from R17 to R11.55 to the dollar. It only recently started to weaken again and is now around R13.50.
This rand weakness has helped improve gold’s performance for South Africans. In rand terms, gold has gone from R 12 000 to R17 000. That is a 42% return.
Gold is still inexpensive on a relative basis and prudent investors would do well to avail themselves to the opportunity of acquiring some gold exposure.
The best way, is to acquire Kruger Rands. The most efficient way is acquiring them at wholesale prices from the Mint Refinery as well as vaulting them there.
David Melvill is a financial advisor at Financial Hub