Gold as an asset class is generally considered as a safe haven because its value generally does not fall during times of uncertainty in the market.
Chantal Marx, Head of Research at FNB Securities, says “Gold is a precious metal and as such its value is not influenced by the same factors that impact other asset classes. Gold could be held along with other asset classes such as equities, bonds, property and cash as a means of diversifying.”
Beyond just being a safe investment vehicle, gold also offers protection against a weakening local currency. For example, if you are invested in Krugerrands and the rand depreciates, you are protected against any losses because gold is US Dollar denominated, in essence its value increases when the rand falters.
Krugerrands protect the value of money because they are traded close to the bullion contained in the coin. However, like any other investment, it’s important to invest long-term in order to see favourable returns from your investment. The price of gold appreciates over time; therefore holding it for longer may be beneficial.
Marx says, “If you have a well-diversified portfolio, which includes gold, you will be buffered against adverse market movements because prices of different asset classes rarely move together. If for example, equity prices fall, bond prices may move up, property prices would not be impacted as much, and gold could end up being stable.”
“Through the FNB Share Investing platform, FNB has made it easy to invest in gold via its Online Banking or the FNB Banking App where prospective investors have an option to invest in gold by purchasing Krugerrands or through Exchange Traded Funds. However, it’s also important to seek advice regarding your exposure to gold so that you do not end up with an overly conservative portfolio,” she adds.
This is an opportunity for South Africans to look outside the normal investment vehicle and buy into something that is designed to preserve wealth. In a low growth economy, measured diversification could help you to stay on track towards realising your financial goals.