Investing in gold is an emotional issue

Jun 21 2013 10:47
A Fin24 user wants to know if it is still a viable option to invest in gold or Krugerrands. He writes:

Is investing in gold or Krugerrand still a viable option? Or would it have been better, in retrospect, to have bought when the rand was stronger?

Dr Chris van Wyk of PSG Hermanus Portfolio Management & Stockbroking responds.

Almost invariably investors in gold or Krugerrands expect a scenario of severe political/social/financial/economic turbulence to play out at some point.

This, it is believed, will render paper money virtually worthless, because crises of confidence bring about serious and wide-spread collapses in the financial sector and create destructive corrections in most investment markets.

Gold is believed to be the eternal and reliable store of value in such circumstances.

Krugerrands can easily and conveniently be moved between locations and will be accepted in exchange for local currency  or in barter transactions whenever and wherever it is offered.

The more the panicking herd runs away from worthless financial assets,  the more the demand for gold or Krugerrands will increase.

At the same time physical gold output is on the decline.

The resultant supply/demand imbalance will drive the price up and make your store of value even more precious. So the argument mostly goes.

Clearly, the desire to invest in gold or Krugerrands is therefore driven as much, or in many instances even more, by emotion than by rational analysis and argument.

If this is the kind of scenario you fear, a holding of gold or Krugerrands may well bring comfort irrespective of the present level of the rand/US dollar exchange rate, particularly as the gold bullion price is at its lowest in a long time.

Prominent South African asset managers consider it prudent to include gold in their portfolios.


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