By Ciaran Ryan
The phones are ringing hot at SA Bullion, as South Africans rush to gold.
It’s gold’s time to shine again. The metal price is up 10% this year and 25% since early 2019. Where it goes to from here is the subject of raucous debate, but the consensus is that it will go higher. Possibly much higher.
The bursting of every asset bubble in-sight, from equities to bonds and real estate, has investors scrambling for cover, and gold is seen as one of the few places of safety at times like these.
Gold shares are one way of participating in this bonanza, but investing in physical gold is for many more desirable – though it requires jumping through a few hoops.
SA Bullion has been around since 2005 and is headed by Hilton Davies, a former investment manager at Allan Gray. Davies set up Allan Gray Namibia and was instrumental in setting up Allan Gray unit trusts before venturing off on his own. “I saw the huge potential for gold as a long term store of value,” he says.
The phones are ringing hot at SA Bullion, as South Africans worried by the global outbreak of Covid-19 try to get their hands on physical gold. The lockdown has put a temporary brake on SA Bullion’s ability to trade, but still, the inquiries are streaming in.
The company offers two ways to get invested in gold:
“In SA we deal exclusively in the bullion Krugerrand, not in proof Krugerrands, which trades at a very high premium to the bullion price and makes little sense to us,” says Davies. “At the end of the day, the only thing of value is the metal content and purity, hence we stick with bullion Krugerrands.”
The company trades more than R1 billion in gold a year and offers vaulting services in Dubai, Zurich and Johannesburg.
Krugerrands are legal tender (so attract no VAT)
The advantage of owning Krugerrands is they are classified as legal tender in SA and are therefore not subject to VAT. The same is not true of bullion bars, whether minted or not, which attract VAT at 15%.
Costs
SA Bullion investment clients who want their gold vaulted in South Africa, acquire their Krugerrands at a premium of 3% to the prevailing metal price. They get charged 1.5% a year and this fee covers vaulting, insurance and management.
How can South Africans buy physical gold?
You can contact SA Bullion via your financial advisor (it is a licensed investment management firm) or approach the company directly at its website www.sabullion.co.za.
After the paperwork is done and the cash transferred to SA Bullion, new bullion Krugerrands are purchased on your behalf from Prestige Bullion (a joint venture between SA Reserve Bank (Sarb) and Rand Refinery). Your gold is then stored at Rand Refinery in terms of a contract with SA Bullion. To exit, you can have SA Bullion sell your Krugerrands back to the Sarb or have your Krugerrands delivered to you.
You can also sign up for a monthly debit order (from as low as R500 per month) much like any unit trust. SA Bullion manages a Nedbank account for every client and their system interrogates the client account balances every day. When you have sufficient funds for one Krugerrand, the system automatically puts your funds into the buy-orders for that day.
International investors
For investors seeking a managed investment in physical gold offshore, the minimum capital outlay is normally $50,000, though SA Bullion has reduced this to $25,000 until end-May. You can invest in Krugerrands, 100 gram Minted Bars or 1 kilogram Cast Bars. For offshore investments, there is no VAT on bars. For your foreign gold account, you get charged 1% a year and this fee covers vaulting, insurance and management.
What if I want my gold stored overseas?
Once your paperwork is done and your cash is ready, SA Bullion arranges for the funds to be transferred to its offshore company in Mauritius, which then does an export trade with Rand Refinery in Johannesburg. The gold is then air-freighted to your vault selection – either Dubai or Zurich. Following the touchdown, the gold is walked through a customs clearance process and then placed in the care of the world’s leading vaulting service provider. Contractually, SA Bullion may not reveal the names or locations of the vault service provider.
When you wish to exit from your investment SA Bullion sells your gold to a foreign bullion refinery or has it delivered to you anywhere in the world (but your export may not be re-routed to a SADC country).
Until now SA Bullion has sourced its gold exclusively from Rand Refinery but plans to source additional gold from an overseas refinery as of April 2020.
What are the chances of governments confiscating gold?
The chances may seem remote that governments will seize gold, but it has happened before in times of crisis. So it shouldn’t be entirely discounted.
One of the greatest heists in history was pulled off in 1933 in the US by then-President Franklin Delano Roosevelt who made it a criminal offence for US citizens to own or trade gold anywhere in the world. Those in possession of gold were forced to swap it for paper money at the price of $20.67 an ounce. A year later Roosevelt introduced the Gold Reserve Act, vesting all gold and gold certificates with the US Treasury, and immediately thereafter changed the statutory price of gold to $35 an ounce – netting an immediate profit for itself of 67%.
“We think the chances of something like this happening again are remote, but it is a question we get asked,” says Davies. “There would be serious consequences for any government attempting to do this again, even in a time of crisis, as it would immediately void property rights and attach pariah status to the government of the day.”
Hence, details of the vaulting services offered around the world are a closely guarded secret.
What are the prospects for gold?
Gold has been in a five-year bull market, but the best may be yet to come. The worldwide outbreak of COVID-19 has materially altered the outlook for one of the few remaining refuges against fiat currency debasement. Central banks around the world are firing up the printing presses to mitigate the catastrophic effects of the global economic shutdown, triggering renewed interest in physical gold. While the rand has lost more than 20% of its value so far this year, gold has held its value in the face of a crashing equity prices and volatile currencies. The shutdown of several of the largest gold mines in the world will constrict supply over the coming months, while demand is expected to ramp upwards over the course of 2020.
In this 21st century gold has gone up in Rands at approximately 15% per annum. Davies does not see this changing.
Brought to you by SA Bullion.
