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Gold Is The Ultimate Contrarian Investment Right Now

Frank Holmes Contributor Great Speculations Contributor Group Markets CEO and CIO of U.S. Global Investors

Legendary global investor John Templeton once said that the best time to buy was when there was “maximum pessimism,” and the best time to sell was when there was “maximum optimism.”

This type of contrarian investing takes great conviction and nerves of steel, but its practitioners—Templeton included—can be rewarded handsomely. The trick is to find the opportunities.

Right now I see gold as the ultimate contrarian investment. The yellow metal is largely unloved at the moment. It’s set to notch its worst monthly slump since November 2016, and the 50-day moving average is threatening to fall below the 200-day moving average.

Bloomberg reports that the S&P 500-to-gold ratio is nearing its highest level in over 15 years. As of this week, it takes close to two and a half ounces of gold to buy one “share” of the S&P 500. That’s up significantly from September 2011 when two thirds of an ounce of gold was enough to get you entry. 

All of this points to the fact that gold is extremely undervalued right now, and no one seems to be paying much attention. I don’t know if this means we’re at “maximum pessimism.” What I do know is that all of the traditional drivers of the gold price are firmly in place, making the yellow metal very attractive, I believe. I’ll highlight two of those drivers below.

Record Money-Printing Favors Gold

Over the past 18 months, central banks have taken unprecedented measures to prop up their economies. That includes printing money at a record pace, which has the direct effect of diluting the purchasing power of the local currency.

Recently I shared with you that nearly a quarter of all U.S. dollars in circulation has been created since January 2020. What that means, essentially, is that the greenback has lost a quarter of its value thanks to the actions of Powell & Company.

Such money-printing has rightfully triggered massive interest in Bitcoin, which (unlike the dollar) is completely decentralized and has no third-party risk. The rate of new Bitcoin issuance is cut in half roughly every four years. No central banker, then, can push a button and create millions more Bitcoin out of thin air.

The same can be said of physical gold. Gold’s supply growth is naturally restricted by a lack of new large discoveries and companies’ reluctance to spend more to develop harder-to-mine deposits.

One advantage that gold has over Bitcoin is that there’s decades’ worth of data illustrating the near-perfect positive correlation between the amount of money circulating in the U.S. economy and the price of gold. As the value of the U.S. dollar has decreased due to greater rates of money-printing, gold has surged to new record highs.

The implication, of course, is that gold may continue to benefit from the Fed’s easy-money policies. 

Graph showing increase of money supply in relation to gold prices
Price of hold historically tracks the increase in money supply FEDERAL RESERVE, BLOOMBERG, USGI

Inflation to Remain Elevated

The second factor is something I’ve been writing a lot about lately—inflation. May’s consumer price index (CPI) rose 5% over the same month last year. That’s the highest rate we’ve seen since August 2008.

The real inflation, though, could be much higher. The price of used cars and trucks are up more than 36% from last year, according to vehicle auction company Manheim, with some pre-owned vehicles selling for more than their original sticker price.

Or consider home prices. They climbed at their fastest rate on record in April, increasing 14.5% year-over-year, surpassing the previous record rate set in September 2005.

Graph showing spike in price of houses
U.S. home prices surge the most since the early 2000s S&P DOW JONES INDICES, USGI

Despite the Fed’s insistence that this current spate of inflation is “transitory,” analysts at Bank of America believe prices could remain elevated for two to four years. Short of a major financial crisis, central banks are unlikely to raise rates in the next six months to tame inflation, according to the bank. The CME Group’s FedWatch Tool shows there’s a 100% chance of rates staying near zero until at least the end of 2021.

Everyone’s heard at one point or another that gold is an excellent inflation hedge. That hasn’t been true in every cycle, and it’s not true now: The CPI is up 5% while gold is effectively flat compared to a year ago.

But that may be because we’re at “maximum pessimism,” as Templeton called it. Gold is presently out of favor as stocks chart new all-time highs. If Templeton were alive today, he might say now is the time to buy.

Plus, with bond yields trading below zero on a real basis right now, investors may have little alternative than to consider gold and gold mining stocks in an effort to combat inflation’s impact on their portfolios.

Is gold overbought or oversold? How can you tell? Find out in my video by clicking here!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds. The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated monthly. It is included in the S&P CoreLogic Case-Shiller Home Price Index Series which seeks to measure changes in the total value of all existing single-family housing stock.

Gold is rocketing - and there are many ways to invest. But some experts are not biting

Phumi Ramalepe , Business Insider SA

Gold spot prices broke above $1,800 per ounce on Wednesday for the first time since 2011.

Investors are fleeing into the "safe haven" investment amid nervousness about spiking coronavirus cases and fears that the pandemic's impact on unemployment will be far worse than during the financial crisis.

If the world economy doesn't recover soon, interest rates will remain very low - which will hit the dollar, traditionally an investment competitor to gold.

Also, authorities will continue to pump new money into the US and European economies. And this kind of stimulus may over the long run create inflation, which is also good news for gold. Gold is considered a good hedge against inflation.

The precious metal traded as high as $1,804.80 per ounce on Wednesday, up roughly 19% year-to-date - and close to an all-time high of around $1,900.goldLong-term gold price.

Some analysts think gold has plenty of room to run. Goldman Sachs raised its 12-month price target for the popular hedge on June 19 to $2,000 per ounce, expecting gold to reach a record high amid lasting virus damage. With interest rates set to remain close to zero for years to come and the US dollar facing significant pressure, the metal's rally shows no signs of stopping, the bank's analysts said.

"As we have argued in the past, gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates," Goldman said. "Simultaneously we see a material comeback from [emerging-market] consumer demand boosted by easing of lockdowns and a weaker dollar."

Investment options for SA investors 

For South African investors who want exposure to gold, there are a plenty of options:

Gold shares

As SA is one of the biggest gold producers in the world, there are many gold miners listed on the JSE. A company like DRDGold has already rallied more than 250% since the start of the year.

You will have to do your homework before deciding which company has the best investment potential, and could run even further.

Buying shares directly can also be quite costly, in terms of brokerage and other fees. Experts warn that investment in gold shares should be part of a diverse portfolio – they can be quite volatile.

Gold unit trusts 

If you aren’t sure which gold shares to buy, there are plenty of ETFs and unit trusts on offer in the sector, says FNB portfolio manager Wayne McCurrie.

A unit trust pools investors' money together to buy a number of different gold mining shares. 

There are a number of gold-focused unit trusts from investment companies like Coronation and Old Mutual. Their fund managers decide which companies offer the best growth over time.

Gold exchange traded funds

Exchange traded funds (ETFs) are a bit like unit trusts: they also pool investors’ money together to invest in assets. But unlike unit trusts, there are no experts to pick investment winners on your behalf. ETFs simply track an index, or an asset price. It should give you the same performance of an index (of shares, for example) – minus costs.

The most popular of the gold ETFs in South Africa, Absa’s NewGold and 1nvest Gold, track the price of gold. When you buy one NewGold security, for example, it is the equivalent of 1/100th of a fine troy ounce of gold.

ETFs are currently massive buyers of gold.

Across the world, year-to-date gold buying for ETFs tracking the metal reached 655.6 tonnes on Wednesday, Bloomberg reported, surpassing the full-year increase seen in 2009. Gold ETF holdings currently sit at 3,234.6 tonnes.

Medallions and Kruger rands

There are two types of Krugerrands.  Bullion Krugerrands, manufactured by the SA Rand Refinery, are 22 carat gold. Their value is directly linked to the gold price. You can currently buy a bullion Krugerrand from around R3,700 for a 1/10oz coin, up to almost R33,000 for a full ounce coin.

There are also proof Krugerrands, which are collectors' items and produced by the SA Mint in limited numbers.

Then there are other collectable gold coins or medallions, which are tricky to invest in if you do not know much about them or what to look out for. These coins are also risky because they can be difficult to sell.

“Krugerrands normally trade at the face value of the gold content. I would not recommend medallions that trade at above the actual gold value. These ‘collectable’ medallions normally have low liquidity,” says McCurrie.

It is much easier to sell a Krugerrand - the South African Reserve Bank must, by law, buy it as a last resort.

But is it a good time to buy gold?

There are plenty of gold sceptics, among them the investment guru himself, Warren Buffett. He has repeatedly bashed gold over the years, most recently calling it a " magical metal (that is) no match for the American mettle."

Apart from jewellery demand, gold doesn’t have any intrinsic value, and – unlike the shares of listed companies - also don’t offer any dividends or other type of income to its investors.

“The best time to invest in gold is never,” says Bright Khumalo, analyst and portfolio manager at Vestact Asset Management.

“And if you're trying to buy gold now, you're probably committing another cardinal sin that most investors fall for and that is buying high and selling low.

“At $1,800 an ounce, gold is at its highest level in 11 years, and every contrarian bone in me says I'm probably buying high. This doesn't mean it can't go up any further.”

McCurrie adds that “gold is an emotional asset” that performs well when there is turmoil in the world’s economy.  

“Therefore, if you think that the worst is behind us now as far as the virus is concerned, then now is not the correct time to buy gold. If you are of an opposite view, then now is a good time to buy gold.”

Additional reporting by Ben Winck

Krugerrand? You can’t go wrong. – Experts Peter Major, David Melvill

 by Nadya Swart

Yesterday, our partners at Bloomberg reported that gold is headed for the biggest monthly advance since July, with inflation risks in focus ahead of key US jobs data due later this week that will offer clues on the economic recovery. To discuss the rising gold price, we invited two experts to join the BizNews Power Hour last night: Peter Major, a veteran mining engineer, fund manager and analyst, and David Melvill, an investment advisor and gold enthusiast. Co-host David Shapiro, who is the Deputy Chairman at Sasfin Securities, joined the conversation. One conclusion that all three experts came to – you can’t go wrong with the Krugerrand. – Nadya Swart

Peter Major on whether the gold price is on its way to $2,000 again:

It may, but I’ll be surprised if it gets over $2,000. I think it’s had a very tight correlation to the dollar and when the dollar started strengthening – gold started weakening and the dollar got stronger and stronger. And when it got down to $1,700, you could see there was resistance there and then people thought; ‘Oh my gosh, is it going to go below that?’ But I think because all the other commodities are holding up so well, there’s no way gold is going to venture very far from them. And it’s probably the least volatile and the most stable of the majority of commodities.

And I’m talking all the way from coal, oil, copper, definitely the other precious metals, you know, the platinum group metals. And it shows; it’s old, it’s slow, it’s steady. It’s a real Taurus. It’s a real reliable metal, real reliable currency. And people have a lot more fun with Bitcoin, but there’s always gold. And yeah, it’s not going to collapse when they’re printing trillions of dollars in the States alone and the other countries are trying to match it, and you’ve got every other commodity known to man shooting up, even uranium starting to move. But yeah, I think for gold to get over $2000 – people have to believe [that] there’s some kind of crisis that only gold is going to benefit from. And I don’t see that happening. 

David Shapiro on gold in his father’s (who was called Mr Gold) era:

It was a lot more fun in those days. We had 40 gold mines and all of them were different. They mined different grades. So there was a different response to any movement in the gold price. And also remember the gold price in those early stages – nothing was fixed. It was only much later that that was free to trade. And what we as a firm used to do – we used to arbitrage; we would trade gold shares and promote gold shares around London, Paris, Brussels, Switzerland and that. So we traded mainly in gold shares. And unfortunately, so many of those brilliant and beautiful companies have all gone. They don’t exist. They all mined out.

For me, it was a wonderful period. I still watch it with passion. I still have my dad’s ‘By Gold’ button – he used to walk around with it. I’ll never forget the fond memories of the markets in those days, but it’s so different nowadays.I still remember all the mines and all the history around the mines. And I love to go down in the mine – there was no better experience than actually going down on one of those tours in a cage with the miners and having a look around there. 

David Melvill on what makes him so excited about ‘the yellow metal’:

Well, I want to reiterate a bit of what David Shapiro says. I got to know another Mr Gold – Peter George – who sadly left this world eight years ago. Peter was very passionate about gold, and I suppose it was that contagiousness about understanding the unconventional economy and coming to understand what real money is – not just paper currency – gold and silver.

And I suppose it’s rubbed off [on] me, and I’ve embarked on a sort of a learning journey of trying to understand it and get to know the history a lot better. And then I also had the privilege of going down under with Neal Froneman and Peter Major many years ago when Aflease Gold was the first South African gold mine to be established after 30 years of no new mining. So I suppose all that sparked the interest.

David Melvill on where he would be advising his clients with the same enthusiasm for gold to put their investments:

I still think the traditional investment of a Krugerrand or a silver Krugerrand are the best investments that anyone can make in South Africa. You know, Krugerrand started in 1967 when they were just a mere R27 a coin. And today, it’s now a thousand times that price – not because gold is so great, but really probably because gold kept its value, but the Rand has been given such a hiding. So it really is probably the best rand hedge that we as South Africans can have; investing in real money by buying gold and silver.

David Shapiro on Krugerrands as an alternative to Bitcoin:

You know what surprised me – and I hate to admit this, because I’m an equity man – and I was quickly trying to get up the chart while talking to you; but on average, maybe in the last 10 years (and I’m going to have to check my money) you’ve made on a gold Krugerrand, which David’s talking about, something like 14% per annum, which I think knocks out a lot of competition. I’m going to have to check the numbers, but I did check this some time ago. And I was even looking at Afrimat’s numbers; over the last five years, they’re up like 30% per annum or something like that. And gold is up 9% per annum over the last five years – which knocks out retailers, it knocks out financials, it knocks out property by a long way, etc … So, although I hate to admit it; if you stuck to your Krugerrand – you’ve done a lot better than a lot of other equities on the market. 

Peter Major on the attractiveness of gold in South Africa:

Gold has always been more attractive in South Africa than the rest of the world, because it’s got a shock absorber called the rand that really helps take the knocks out, really takes volatility out. The further you go back on a graph, the further back in time you look; it’s hard to find four years when the rand gold price went down. And even though it did go down in those four years, you had maybe a total loss of 20%.

Now, how many investments, when the bottom falls out, only fall 20%? And this only happens for three [years] – maybe four years is a record – and then it corrects that very quickly in the fifth year. So I look at how long some of these equity markets go down. They can go down and stay down for years – 10 years, five years. But gold is a very safe investment in South Africa. Its long term average, I think, is about 13%. And, you know, that’s way above inflation here. And if you want to do what people were doing with Bernie Madoff; the reason he got so many people giving him money – he didn’t show great returns, but he showed no volatility.

So I think he was only showing 7-8% a year. But he says; ‘Hey, borrow money, bond your house at four or five, and gear up – because you know I’m going to give you eight. And boy, he did give eight. Well, gold kind of does that here. It consistently beats inflation. If it does fall down, it doesn’t fall very hard. It doesn’t stay there very long. 13% plus for what – seventy years in a row? It’s not going to stop. 

Peter Major on Krugerrands vs gold shares:

I’m in the cab that David Shapiro is in, because for hundreds of years gold went flat. And then even in the 1900s – it went flat for decades. So, if you’re a good mining engineer, a good investment adviser – you made money that way. You said; ‘OK, I know what the gold price is going to be for the next three years. Here’s my working cost; if I can control my cost – I can make a profit. If I can get more efficient, hire better engineers, new technology – I’ll make a little better margin. If I can increase production, you know – my fixed costs will be spread over a wider part.

And that’s how South African gold shares took off. They had to import a good mining engineer from the United States – who learned how to do cost control in Alaska on what was the continent’s largest low grade gold mine – and they brought him down to the diamond fields in the 1890s, and then took him to the gold fields. It’s about cost control. And yeah, you could sink another shaft, you could hit another vein, you could merge with somebody. So this is how you made money on a flat gold price. And then when the price went up – oh boy, then you got super dividend’s, super profits.

But we’ve lost that here. Government has literally attacked our industry. They’ve destroyed our SOEs. And now the world, like Neal Froneman is saying; even if you got a deep level gold mine, they’re going to start nailing you; ‘How do you get your electricity? If you get your electricity green, that’s OK. But boy, if you get it through coal, that’s not OK. So there’s so many negative factors against the equities, especially in this country, that you want to do it through a gold ETF, a Krugerrand, a coin – something like that. 

Best Place To Buy Gold Krugerrands

Buying Gold Krugerrands at the best price may seem like a challenge. We live in a time when there are seemingly more places to buy gold coins online than ever before. But some bullion dealers rise to the top when it comes to getting the best blend of selection, service, and—of course—price.

How to Find the Best Place to Buy Gold Krugerrands

Bullion dealers don’t need specialized licenses to sell gold Krugerrands. Still, it does help to buy them from a dealer who is knowledgeable, connected, and has the best resources to offer you the widest selection at reasonable prices. Here are some of the credentials some of the best gold dealers have:

At the end of the day, the best place to buy gold Krugerrands is a dealer who offers you the items you want at a fair price. Don't settle for less than the stellar service and professional competence you deserve.

Look For Fair Pricing

It seems that nearly everyone wants to buy gold Krugerrands cheaply. But “cheap” may not be the best criterion for buying bullion. Looking for the lowest price leads many well-meaning but misguided people to backdoor deals.

Perhaps they’re buying cheap gold off an alternative online marketplace. It may require the buyer to meet the seller in an unconventional location, like a big box store parking lot. All too often, the buyer ends up forking over their hard-earned funds only to buy counterfeit or stolen goods. Why else would the seller offer their gold Krugerrands “cheap”?

The Anti-Counterfeiting Educational Foundation, a well-respected consumer advocacy organization that aims to protect consumers from fake bullion and numismatic coins, is seeing a marked increase in fakes these days.

The old adage applies: “if it seems too good to be true, it probably is.” Run for the hills when you see an advertisement for cheap gold Krugerrands. You’re going to pay more than you bargained for.

There are several factors that go into the price of gold Krugerrands, including:

The “spread” between the gold spot price and the actual price you’ll pay for a gold Krugerrand depends on many factors. Market fluctuations, marketplace demand, and inventory issues are a few examples.

Some dealers tend to offer slightly lower premiums on “random dates” versus specific dates. This is for various reasons. Sometimes, the dealer may have an oversupply of a particular, less-popular date. Or perhaps they bought a bulk purchase of said date and want to eliminate stock of that coin as quickly as they can. This can behoove you, the buyer, if you’re not picky about what date of gold Krugerrands you want for your portfolio or collection.

While you can score some legitimate deals buying random year coins, as a retail consumer you will not be able to buy your gold Krugerrand “at cost” or less. Instead, your aim should be looking for fairly priced pieces from a dealer who provides you with a good selection, exceptional service, and a satisfaction guarantee.

Focus on Reliable Service

Nothing beats reliability—especially when it seems there’s little we can count on anymore. When you spend hundreds, thousands of dollars on gold bullion, you want to be sure that you’re not getting a raw deal but rather a good one.

That is why it’s important to buy gold Krugerrands from a coin dealer who is established, well respected in the industry, has a solid network of suppliers, and who is good for their word. In other words, you want to be able to know what to expect!

What are some of the things that might cross your mind when the word “reliability” is used in describing a gold dealer? Perhaps the phrases “consistent service,” “fair pricing,” and “fast shipping” come to mind.

But don’t forget about good, old-fashioned ethics. This doesn’t seem to be a word many think much about these days, but honesty and integrity still count for something. And you want a dealer who not only stands by their word but will also correct any mistakes that might happen to come up.

Be Informed

Reliability, fair pricing, and honesty are all hallmarks of a good bullion coin dealer. But when you buy gold Krugerrands, you also want to work with someone who will answer your questions thoroughly. A good dealer wants to educate you on what you’re buying. They can help guide you on your buying decisions based on your personal collecting or investing goals.

Knowledge is power. Dealers who publish quality, well-researched educational content are in it to help you succeed as a collector or investor. Still have questions? Ask them! The best bullion dealers hire a team of experienced customer service professionals who stand at the ready to answer your questions. They'll help you make the best choices when buying gold Krugerrands or any other bullion or collectible coins.

What Is a Gold Krugerrand?

The South Africa gold Krugerrand is one of the oldest and most beloved of all world bullion coins. First released in 1967, the Krugerrand was a joint venture between the South African Mint and Rand Refinery.

The name “Krugerrand” is a portmanteau of two words:

Kruger is pictured on the obverse of the coin. The reverse of the Krugerrand features a springbok, which is the national animal of South Africa.

Krugerrands are official legal tender of the South African Republic. However, they do not carry a face value. Instead, they are valued based on their precious metal content.

Many of today’s investors are accustomed to having a plethora of options for buying world bullion coinage. Still, until the early 1980s, there was no other modern gold bullion coin available on the global market like the 1 oz gold Krugerrand. It was the first to offer one full troy ounce of high-purity (91.67% fine) gold.

As a result, the South African Krugerrand represented the lion’s share of gold bullion coin trades during the early 1980s. The coin carried 90% of the global coin market at the time.

Much of this changed later in the 1980s. The Krugerrand was caught up in embargoes against South Africa and its system of racial segregation known as apartheid. During the ‘80s, several other major nations began issuing their own gold bullion coins as well. This included the United States, which launched its American Gold Eagle series in 1986.

After apartheid came to an official end in the mid-1990s, South African gold Krugerrands began seeing more significant market share again. Still, they were also up against a more crowded bullion coin scene. New additions to the world gold market included the British Gold Britannia and Chinese Gold Panda, among others.

Why Buy Gold Krugerrands?

The gold Krugerrand carries on as one of the most respected bullion series and as the oldest coin of its type. The Krugerrand is recognized virtually everywhere and thus is highly liquid. Investors know that when they buy South African gold Krugerrands, they get a solid coin that is widely respected and holds its value well.

Regardless of what type of Krugerrands you choose for your collection or investment portfolio, you really can’t go wrong with this series. The Krugerrand is widely known and trusted, and the mintage numbers behind this series bear this out. All told, the South African Krugerrand has become the most widely distributed bullion gold coin in the world! Some 50 million have been struck since their inception in 1967.

Gold Krugerrand Options

When it comes to bread-and-butter gold bullion coinage, the South African Krugerrand is a staple. While the original 1 ounce size is among the most popular, they are also made in three fractional sizes:

These various fractional gold Krugerrands first hit the market in 1980. They allow more gold bullion investors and collectors to buy Krugerrands that best suit their budget.

In more recent years, the traditional “bullion” gold Krugerrand coins have been joined by a host of limited-edition-proof Krugerrands minted expressly for collectors. Proof Krugerrands sell for higher premiums than do business-strike (or bullion-quality) specimens. Still, they also have much lower mintages than typical uncirculated Krugerrands. They also boast exceptional strike quality and aesthetic beauty.

While proof gold Krugerrands are a favorite among collectors, they’re also popular with gold investors who want something special to add to their bullion portfolios.

Another exciting option among the Krugerrand bullion coins is the 1967–2017 50th anniversary commemorative issuance. These special 2017 Krugerrands were struck in “Premium Uncirculated” finish and were also offered in platinum and silver formats. Platinum Krugerrands and Silver Krugerrands are an excellent addition to the series. Each are offered in one-ounce sizes.

The 2017 commemoratives Krugerrands were made in the Premium Uncirculated and proof formats. They are distinctive from regular issues by way of a “50” privy mark to the right of the springbok motif on the reverse of the gold coins and directly above that design on the silver and platinum pieces.

Joshua McMorrow-Hernandez is a journalist, editor, and blogger who has won multiple awards from the Numismatic Literary Guild. He has also authored numerous books, including works profiling the history of the United States Mint and United States coinage.

Source: gainesvillecoins.com/blog/best-place-to-buy-gold-krugerrands

David Melvill on the hidden investment gem – Krugerrands

 by Justin Rowe-Roberts

Independent financial advisor David Mevill, a long-time gold bull, shared his insights regarding the benefits of holding Krugerrands as an alternative investment. Amazingly, David says gold has been the best performing asset class over the past 50 years. Gold is known as a safe haven asset that performs well during economic turmoil and during inflationary periods, where it is seen as a store of value against eroding purchasing power. – Justin Rowe-Roberts

David Melvill on the hidden investment gem that is the Kruger Rands: 

The economist Mike Schussler did a summary around eighteen months ago looking at the different asset classes over 50 years and would you believe it, gold comes out tops, it beats the South African equity index, offshore equity, cash in the bank and bonds. It was quite amazing that he could pick this up and bring it to the fore.

On the complexities in the Kruger Rand price: 

People typically look at the spot price of gold. If gold is quoted as 1895 dollars an ounce, you multiply that by the USD/ZAR exchange rate (R13.54 to the dollar) which equals R25,658. But that’s just the spot price of gold – that’s having a lump of raw gold in your hand and nothing has been done with it. That’s where the rand refinery comes in which is in fact the oldest refinery in the world and the biggest – its been going since 1921 and owned by the original gold miners. The refinery then melts it and forms it into gold coins, which are Kruger Rands. The refinery process adds around 4.5% to the price of a Krugerrand to bring it to the finished product.

On the diversification benefits of holding Kruger Rands: 

I see it as an alternative currency and protecting yourself against the debasing of currencies. For anyone that needs to travel in a hurry, it couldn’t be a better idea to take a few gold coins with you. As insurance but also as a very liquid currency, that’s the beauty of Krugerrands.

Source: https://www.biznews.com/global-citizen/2021/06/09/krugerrands-melvill

Krugerrands

By CARLA TARDI  Updated Apr 22, 2021

What Are Krugerrands?

Krugerrands are gold coins that were minted by the Republic of South Africa in 1967 to help promote South African gold to the international markets and to make it possible for individuals to own gold. Krugerrands are among the most frequently traded gold coins in the world market.

The coins have legal tender status in South Africa, although Krugerrands were never assigned a rand (ZAR) value. Krugerrands were designed to derive their value exclusively from the price of gold at the time they are traded. If the price of gold changes, so does the price of Krugerrands.https://135c9bdbfd891ac1b7e1c682b4c2748b.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

KEY TAKEAWAYS

Krugerrands: The Gold Coin

The face of a Krugerrand coin bears the image of Paul Kruger, who was president of the South African Republic from 1883 to 1900. The coin’s name comes from combining Paul Kruger’s surname with “rand,” South Africa’s national currency. The reverse of the coin portrays a galloping springbok antelope, which is one of South Africa’s national symbols. Paul Kruger held office when one of the world’s most profitable mines, Durban Deep, was founded in 1896. He also was president during the Witwatersrand Gold Rush, which led to the founding of Johannesburg, one of South Africa’s largest cities.

The Johannesburg Stock Exchange (JSE) trades in Krugerrands through a well-regulated secondary market in the same way as any listed equity market instrument, with quoted prices based on the weight of the coins. New Krugerrands are issued by the South African Reserve Bank (SARB). Because of its legal tender status in South Africa, the Krugerrand was minted to be more resilient to wear than the 24-karat gold coins used for decoration medals. The Krugerrand is made of 22 karats, or 91.67%, gold, with 8.33% copper alloy.

Krugerrands: History

When Krugerrands were minted in 1967, the United States did not permit its citizens to own gold bullion, but it did permit ownership of foreign coins, so the Krugerrand could be bought and sold in the U.S. As the consciousness of South Africa’s apartheid—that country's system of racial segregation—policies grew, the Krugerrand suffered from diminished interest. During the 1970s and '80s, numerous Western countries banned the import of Krugerrands as part of enforced economic sanctions against South Africa because of apartheid. The United States banned the import of Krugerrands in 1985. These economic sanctions ended in the West in 1994 when apartheid was abandoned by South Africa. However, many U.S. investors did not realize that the ban had been lifted, which caused low volumes of U.S. imports of Krugerrands.

In 1970, South Africa was the largest gold producer in the world, holding more than 75% of the world’s gold reserves. Throughout the 1970s, Krugerrands quickly became the leading choice for gold investors. By 1980, at the peak of the gold market, the Krugerrand overwhelmingly dominated other gold investments, accounting for 90% of the world’s gold-coin market.

Current Status

In 1994, following the end of apartheid, production of the Krugerrand plummeted. Since then, South Africa's gold production bounced back, but it has never returned to its heyday levels of the 1970s and '80s. In 2016, the nation’s gold output had dropped by 85% since 1980, and South Africa produced just 6% percent of the world’s gold.

Today, Krugerrands continue to suffer. As the graph below displays, South Africa's gold production fell by more than 30% between December 2018–19, extending its longest run of contractions since the 2007–08 financial crisis.

Investing in Krugerrands

Krugerrands remain a popular investment for gold investors in part because of their value and small size, which makes for easy storage. Krugerrands appeal to professional and private investors who wish to make a direct investment in gold bullion, hedge their portfolios against the U.S. dollar, or further diversify their portfolio.

Investors continue to buy gold because of the proven longevity of its value. Many gold investors consider this precious metal a safe investment that will retain its value even in an economic collapse. Owning a tangible asset appeals to some investors, who may put greater trust in physical coins or bars than in securities investments that exist only on paper. 

If you are interested in buying Krugerrands you should have a secure place in which to store them. You also should be wary of scammers, seek a reputable gold dealer, and brush up on your state’s tax laws, which could include a sales tax on gold. Here are some features of investing in gold that some investors could find attractive:

The global standard for gold coins

First minted in 1967, the South African Krugerrand set the global standard for collectable and investment gold coins and is still the most extensively collected and traded bullion coin in the world.

People know that the world’s first heart transplant was performed in Cape Town by Dr Chris Barnard, but do they know that other South African inventions include the CAT scan, Q20, Kreepy Krauly, and a unique wealth preservation vehicle, the Krugerrand?

The first Krugerrand was minted in South Africa in 1967 and has been making news and breaking records ever since.

Rael Demby, CEO of The South African Gold Coin Exchange, The Scoin Shop and SafeGold, explains that the launch of the gold bullion Krugerrand created a new marketplace and made gold ownership more accessible. “The idea behind the coin was to create something that would appeal to collectors and investors, as well as serve as legal tender bullion.”

A world first

The first batch, issued in 1967, were the first modern coins to consist of one troy ounce of 22-karat gold with a gold purity level of 91,67%. Over 50 million ounces of Krugerrand coins have been sold globally, by far the most of any bullion coin in terms of volume.

The Krugerrand set the global standard for collectable and investment gold coins. Since 1967, many other countries have taken their cue from South Africa and have produced their equivalents, including the Canadian Maple Leaf, the American Eagle, the Gold Panda of China and the British Gold Britannia.

All of these coins are based on the South African Krugerrand model. The Krugerrand is one of South Africa’s most important assets. It is still the most extensively collected and traded bullion coin in the world.

Keeping it safe

What gives gold coins and collectables such a sparkling reputation? Gold has been used as a form of currency for more than 2 000 years, showing gold coins and collectables to be historically valued.

Gold coins and collectables are categorised as safe-haven assets, which include property, diamonds and fine art. According to Demby, gold coins occupy the top spot in the ranking.

“They withstand periods of crisis, fluctuation and inflation. Gold coins are a physical commodity; they’re tangible. You can feel the weight of a coin. That’s very reassuring,” says Demby, and adds that buyers appreciate genuine physical insurance.

“Holding a gold coin or collectable is a comforting feeling. You appreciate the weight, enjoy the craftsmanship and are encouraged by your ownership.”

But where are your coins when they are out of your hands? Did you know that you can’t insure Krugerrands that you keep in your own home?

You can insure other valuables like jewellery and art, but not your Krugerrands. You can insure your car, your pet and your life. But within your own home, it is not possible to insure your Krugerrands!

Demby says people instinctively know gold is valuable and understand that it must be stored safely.

“You probably also realise that gold coins and bars come with no replacement policy. If you lose them, they’re gone for good.”

Hop on the Internet, and you might come across a random post suggesting storing gold and silver in a water-filled fish tank.

If that sounds crazy, home storage methods like hiding, burying or using a home safe are even crazier. Demby believes that at-home storage of uninsured valuables is ludicrous.

“Our advice is to use a bank’s safe deposit box or a storage facility like SafeGold. Remember, once you lose your gold, you have no recourse should you become a victim. With SafeGold, your Krugerrands, medallions and other numismatic valuables are insured and kept in a state-of-the-art off-site storage facility that specialises in gold storage. When storing your gold, you need to think about security, ownership, accessibility and contamination.”

Anonymous and secure

SafeGold is a premium safe custody option at a highly competitive price that is fully insured, audited and unlimited. And for one fee, you can put in as much gold as you want.

SafeGold offers unrivalled security and total confidentiality and discretion. SafeGold is a trusted, safe custody option that gives you the luxury of remaining anonymous while ensuring your valuable collection is locked up safely and insured for your peace of mind.

You don’t want your Krugerrands, collectables and other valuables lumped in together with everyone else’s. So how do you keep possession of your specific gold?

Every item is carefully audited and controlled by a team of highly skilled coin connoisseurs. You want to know that you can access or withdraw your gold when needed.

SafeGold allows visits to the vaults and delivery services. You can inspect your coins at leisure, and then send them back. Importantly, your precious metals are protected from contamination by layers of physical and technological protection.

“We’ve spent decades building an infrastructure of trusted and committed relationships with our vaults and insurers, allowing us to bring our clients the most affordable, secure storage facility,” Demby says.

Source: https://www.farmersweekly.co.za/agri-business/agribusinesses/the-global-standard-for-gold-coins/

Is it still worth investing in Krugerrands?

Thorne White, Western Cape Regional Manager for Mr Kruger, talks about the advantages of investing in Krugerrands.

Does investing in gold or silver remain an excellent option?

The Krugerrand, first minted in 1967, is surely one of the old classics in this sphere, but they are hard to find these days says Refilwe Moloto, and are priced around R28, 502 an ounce.

On this week's edition of Moolah Monday, Refilwe Moloto speaks to Thorne White, Western Cape Regional Manager for Mr Kruger, about the advantages of investing in Krugerrands.

Thorne says the Krugerrand is that 22-carat gold coin that enthusiasts love and which circulates the world.

It is the most phenomenal thing to have on hand as an investment. There is so much that you can do with that coin, as an investment, hand it over to your kids, or as a birthday or anniversary gift,

Thorne White, Western Cape Regional Manager - Mr Kruger

What exactly are they made of?

The 22-carat gold coins are 90% gold with a little bit of copper which helps make the coin more durable, says White.

The price is volatile as it is linked to the JSE market he says.

We look at the spot price for the day and that is how we determine the price on the day.

Thorne White, Western Cape Regional Manager - Mr Kruger

A premium is paid when a coin is bought and not sold. at Mr Kruger, the premiums would be 7% above the spot price when you are purchasing it from us, whereas the industry is normally roughly between 6 to 12%.

Thorne White, Western Cape Regional Manager - Mr Kruger

Selling a Krugerrand is a great market to have at the moment.

Thorne White, Western Cape Regional Manager - Mr Kruger

It is a great time now to buy as the products are at such a great rate.

Thorne White, Western Cape Regional Manager - Mr Kruger

Krugerrands are issued by the South African Reserve Bank.

Gold just hit a record high - here are some of the investment options for South Africans

Phumi Ramalepe , Business Insider SA

The precious metal has been rallying as the dollar slumped to its weakest levels against the euro in 22 months. The dollar is traditionally an investment competitor to gold.

The dollar is under pressure as it is currently not offering an interest rate that is above inflation - and investors don't believe the US central bank will hike rates any time soon.

For investors in the developed world, investing in physical gold actually makes sense, because many of these countries now sit with engative interest rates, says Schalk Louw, a portfolio manager at PSG Wealth. 

The dollar also took a hit amid worries about the economic fallout of the coronavirus pandemic, as well as new China-US tensions.

On Friday, the Chinese government ordered the closure of a US consulate in the city of Chengdu. Earlier last week, the US government demanded that the Chinese government closes its consulate in Houston, Texas.

Meanwhile, in an inflammatory speech on Thursday, US Secretary of State Mike Pompeo called on "free nations" to triumph over China's "new tyranny." He also reportedly told UK politicians that the head of the World Health Organisation, Tedros Adhanom Ghebreyesus, was "bought by the Chinese government."

Gold is seen as a safe-haven investment in times of turmoil, and there has been record investments in the precious metal - with exchange traded funds (ETFs) now holding a record 3,300 tonnes of gold.

Gold is also benefiting from expectations that massive amounts of quantitative easing – when central banks create money out of thin air to pump into markets – will eventually trigger inflation.

Theoretically, high inflation is good for gold. Inflation means money loses its value, which encourages investors to turn to gold.

"The scale of quantitative easing is staggering, and that is causing real concern that the extra money in the system will lead to inflation," Ed Moy, chief strategist at gold seller Valaurum and former director of the US Mint, said. "When people are scared, they want to take chips off the table, and gold is typically one of the places where people put their chips in times of crisis."

Some analysts think gold has plenty of room to run. Goldman Sachs has a 12-month price target of $2,000 per ounce. With interest rates set to remain close to zero for years to come and the US dollar facing significant pressure, the metal's rally shows no signs of stopping, the bank's analysts said.

"As we have argued in the past, gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates," Goldman said. "Simultaneously we see a material comeback from [emerging-market] consumer demand boosted by easing of lockdowns and a weaker dollar."

Investment options for SA investors 

For South African investors who want exposure to gold, there are a plenty of options:

Gold shares

As SA is one of the biggest gold producers in the world, there are many gold miners listed on the JSE. A company like DRDGold has already rallied more than 250% since the start of the year.

You will have to do your homework before deciding which company has the best investment potential, and could run even further.

Buying shares directly can also be quite costly, in terms of brokerage and other fees. Experts warn that investment in gold shares should be part of a diverse portfolio – they can be quite volatile.

Gold unit trusts 

If you aren’t sure which gold shares to buy, there are plenty of ETFs and unit trusts on offer in the sector, says FNB portfolio manager Wayne McCurrie.

A unit trust pools investors' money together to buy a number of different gold mining shares. 

There are a number of gold-focused unit trusts from investment companies like Coronation and Old Mutual. Their fund managers decide which companies offer the best growth over time.

Gold exchange traded funds

ETFs are a bit like unit trusts: they also pool investors’ money together to invest in assets. But unlike unit trusts, there are no experts to pick investment winners on your behalf. ETFs simply track an index, or an asset price. It should give you the same performance of an index (of shares, for example) – minus costs.

The most popular gold ETFs in South Africa, Absa’s NewGold and 1nvest Gold, track the price of gold. When you buy one NewGold security, for example, it is the equivalent of 1/100th of a fine troy ounce of gold.

Medallions and Kruger rands

There are two types of Krugerrands.  Bullion Krugerrands, manufactured by the SA Rand Refinery, are 22 carat gold. Their value is directly linked to the gold price. You can currently buy a bullion Krugerrand from around R3,700 for a 1/10oz coin, up to almost R33,000 for a full ounce coin.

There are also proof Krugerrands, which are collectors' items and produced by the SA Mint in limited numbers.

Then there are other collectable gold coins or medallions, which are tricky to invest in if you do not know much about them or what to look out for. These coins are also risky because they can be difficult to sell.

“Krugerrands normally trade at the face value of the gold content. I would not recommend medallions that trade at above the actual gold value. These ‘collectable’ medallions normally have low liquidity,” says McCurrie.

It is much easier to sell a Krugerrand - the South African Reserve Bank must, by law, buy it as a last resort.

But is it a good time to buy gold?

There are plenty of gold sceptics, among them the investment guru himself, Warren Buffett. He has repeatedly bashed gold over the years, most recently calling it a " magical metal (that is) no match for the American mettle."

Apart from jewellery demand, gold doesn’t have any intrinsic value, and – unlike the shares of listed companies - also don’t offer any dividends or other type of income to its investors.

“I’m the worst gold bull you’ll find,” says Louw. “Gold as an investment do not make sense to me. You’re not going to earn an income out of buying a block of gold. You’re just going to buy yourself short-term safety.”

“The best time to invest in gold is never,” adds Bright Khumalo, analyst and portfolio manager at Vestact Asset Management.

“And if you're trying to buy gold now, you're probably committing another cardinal sin that most investors fall for and that is buying high and selling low."

McCurrie adds that “gold is an emotional asset” that performs well when there is turmoil in the world’s economy.  

“Therefore, if you think that the worst is behind us now as far as the virus is concerned, then now is not the correct time to buy gold. If you are of an opposite view, then now is a good time to buy gold.”

Mr. Gold on Krugerrands and investing in the yellow metal

by Alec Hogg

The gold price hit its highest level in eight years this week, so is now the time to invest? On the one hand the sage of Omaha Warren Buffett says “it (gold) doesn’t do anything but sit there and look at you.” But gold is like any investment circle, it has both its bears and bulls, with one such bull Alan Demby, the owner of the South African Gold Exchange and its retail outlet the Scoin shop. In this interview with Biznews founder Alec Hogg, Demby explores the different avenues an investor can undertake when investing in gold. Arguing why it should make up a portion of the basket, but shouldn’t be the only egg. – Stuart Lowman

This interview is brought to you by the Scoin shop. Mr. Alan Demby is the chief executive and owner of South Africa Gold Coin and retail division, Coin Shop. I would call you Mr. Gold or Mr. Gold Coin of South Africa because you do have quite a dominant position in the South African market on Krugerrands and other gold coins.

I don’t mind you calling me Mr. Gold because I’ve been in the business for over 40 years. I’ve stuck it out through all the good times and bad times through the blood markets and bear markets, is proof of my determination that gold is/was and will be a store of value for many years to come.

How is it done and maybe we can start off with the point of being a store of value relative to inflation that over a long period of time and investment in gold and particularly in gold coins like the Krugerrands in South Africa have outperformed the inflation rate and many other investments.

If you take 1967 when the first Kruger run was issued – if you had put R10,000 into Krugerrands then – they’d be worth about R11m-R12m today. That’s a huge appreciation.

If we go to the turn of the century, just after Y2K and you look at the numbers today, it has appreciated by $1,500 and 50% per annum. Over the last 20 years gold has appreciated by 25% per annum, proving its value. Gold, like many other asset classes, appreciates and depreciates but our mantra has always been it’s just a store of value, a store of wealth. You put 10%, 15% of your money into gold, you actually don’t even want it to perform. It’s just there to give you peace of mind and of course all the money in existence for the last 6,000 years. Gold is still there. You can’t print gold like you can print dollars. Although gold is quoted in dollars and in South African terms the rand dollar exchange rate multiplied by the gold price in dollars gives you R35,000 an ounce.

My concern is that the Americans are just printing dollars like crazy and one wonders what is the value of the dollar.

That’s the big question many people are trying to get their heads around at the moment. In South Africa, we’re printing R500bn, 25% of our annual budget. In the US, they are printing $2trn. Where do you go to hedge yourself against the inevitable inflation that will come from this. I suppose Mr. Gold will say gold.

Well inflation isn’t that bad. Hyperinflation is really the elephant in the room. When you have countries like Germany, Zimbabwe and Venezuela just printing billions and billions of notes you are going to devalue the very thing and your buying power will dissipate enormously. A certain amount of inflation is not the end of the world. After 1986 the Japanese market crashed out and the government printed a trillion dollars in those days and somehow it helped keep the country afloat. Admittedly, the share market was overinflated. It was about 36,000 and took a smack and went as low as about 12,000-13,000. Printing money within reason is not the worst thing so long as you keep control over it. If that’s possible and so long as the money is used for all the right things, buying food, houses, homes and medical care. If it is used for the right reasons, it’s not the worst thing. But having said that, we can go back to the gold standard. You can’t trade in gold coins for your everyday purchases. So, you still need money. Gold has a place and even money that is devalued still has a place in the world.

Mr. Demby, what have your clients been doing lately when they’ve looked around at this Covid-19 crisis have they wanted to buy or sell their gold.

We do offer a two way market. A lot of people are cashing out. If you think about it Krugerrands with probably R5,000 an ounce 20 years ago. So if you can cash out at R35,000, it’s an amazing return.

On the other hand, people who have got cash are looking for a safe haven. Gold is at a moment a good bet at the same time. You can’t put all your money into gold and not all at one moment in time. You know I’m a firm believer in Rand cost averaging. If the present situation gets you started to buy a coin,  one coin a month, one coin every quarter, one coin a year,  it’s a good way to start but to put all your eggs in one basket, to put all your money in the bank or your money in Krugerrands, which is not an income producing asset is senseless. I’m a firm believer that you don’t put all your eggs in one basket – to have a mix of assets is probably your best investment strategy – probably is your best investment strategy of all time.

How much would you recommend to your clients that they put into gold. How much of their portfolio?

Many years ago, I suggested 10%  to 15%,  but in the last 10 years when the previous government was profligate and were doing bad deals and the rand was devaluing and depreciating, I moved from 15% to 25%. In spite of that, you still had to have other asset classes. It’s true that the property market ballooned and has taken a bit of a smack of late. It’s true that the share market has increased enormously and has taken a bit of a smack at the moment. Nevertheless, it’s a mix of assets that is going to save your bacon at the end of the day.

You said earlier that this is a good time to invest in gold. You regard gold as a good bet. Why?

It’s just the ultimate insurance policy against the insurance policy. It’s just a store of value. It’s one of those illogical investments or illogical assets that everybody somehow appreciates. You can hold it in your hand. The next best thing are dollars and dollars are widely used as a transactional currency, but somehow gold is accepted and acknowledged and the price is the price which is set internationally. I don’t think there is perhaps the manipulation with gold as there is with currencies. America has just printed a couple of trillion dollars worth of notes. Gold has to be mined, it has to be brought up out of the ground and even that’s trading at about $1,600 an ounce. It’s low cost $1,000 an ounce to get it out of the ground. A combination of gold and other assets is the ultimate balance to your portfolio.

It’s a good point you made, I was reading recently that if you took all the gold that had ever been mined from year dot to today it would only fill two Olympic sized swimming pools which is quite a sobering thought. The amount of supply that’s out there is not infinite.

Indeed, although at times like this you may find people selling gold, jewellery, from other sources and from computers. Gold is recyclable. Although, there is a finite amount that on the other hand new gold is being mined all the time. There is a finite amount of gold in circulation but it does recycle. There is a finite amount, it’s only two Olympic sized pools ,but it still is only two Olympic sized pools worth of gold.

How do people buy gold coins today. We know ETFs on stock markets here and internationally, but some people actually physically hold it. How do you get your hands on a Krugerrand? Do I simply come to the SA gold coin exchange and say give me?

You can say give me, but you also have to give me cash. You give me R35,000. In 1967, the Rand Refinery minted the first Krugerrand and that started a trend. Already in the 50 odd years that Krugerrands have been in exchange, there are about 17m coins that have been minted. In 1980, the Royal Canadian Mint brought out Maple Leaf coins. It was then followed by the Nuggets from the Perth Mint, the Pandas from the Chinese Mint and the Philharmonic. Strangely enough, the Philharmonic William Coin is probably one of the most sought after coins in the world. I am still not sure why the Austrian Mint is still one of the key minters of coins but in totality since 1967 the market in bullion gold coins is approximately 150m coins. People do want to hold and own tangible coins.

The financial markets are happy to own ETFs. If you then buy a thousand coins or more to store and carry, and to ensure it is near impossible but you know for the average man in the street who buys a few coins, it’s a better option to keep the coins physically. Our average client holds about twelve Krugerrands which is worth about half a million rand today. There is something about that tangibility of gold which appeals to the men in the street.

Of course, it’s internationally universal. It can be taken anywhere. It can be traded. You don’t need to go to a foreign exchange dealer. People will accept it. Even the South African Reserve Bank will accept your Krugerrands. At the moment, you’d get a spot from them but if you were trading them in the marketplace you would get a small premium over the gold price. It’s as easy as walking into the gold coin exchange or to any one of our Scoin shops around the country. it’s very simple and very easy to trade.

What has trade been like lately?

Probably when we met 20 years ago, we couldn’t give Krugerrands away at R5,000, now it’s R35,000. We can’t get enough of them. Markets are overbought and markets are oversold. When it comes to Krugerrands – I’ve noticed in all the years that I’ve been in the business – it’s one of those asset classes that needs to be purchased on an ongoing basis irrespective of the price. But of course people are people. People are human. They do tend to buy when prices increase when there’s price inflation and they do tend to sell when the price falls. It’s just the nature of the beast.

Alan Demby is the owner of the South African gold coin exchange and its retail outlet the Scoin Shop.

Source: https://www.biznews.com/sponsored/2020/04/29/gold-krugerrands-investing