All that glitters IS gold

Posted on Categories Economics
Gold Bars
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My fellow saffas will know this week we’ve been reminded, yet again, that unlike most countries where you just need to worry about countless economic factors affecting your savings, we also have the questionable honour of worrying about the random uttering of a shower head.

We’re quite unique in some ways, but there’s nothing unique about being at the mercy of the swings and roundabouts of your currency:

  • the EU has its migrant crises, the PIIGS, meager growth and the rise of populism
  • the US has $20 trillion in debt, meager growth and the rise of populism
  • the UK has much the same (although I salute them for today’s momentous formal triggering of Brexit)

There’s substantial uncertainty in the world, truly a time to, as Bill Gross puts it: Worry about the Return ‘of’ Your Money, Not ‘on’ It

There is a reason people turn to gold in such times, while it’s a terrible investment, it is an excellent hedge, perhaps the ultimate hedge?

By way of demonstration, let’s compare a workhorse that’s been with us for 49 years already, the mighty Toyota Corolla:

Price in: USD ZAR oz of gold
1968 Toyota Corolla 1,700 1,214.29 43.25
2017 Toyota Corolla 18,500 240,500 14.77

Naturally a 2017 Corolla is much nicer than a 1968 one, unless you like classics of course, but with modern manufacturing and design methods one would expect the cost to go down over 49 years, yet you need 10 times as many dollars and almost 200 times as many rands now to buy the equivalent product, what gives?

Curiously the same amount of gold that could buy the 1968 Corolla brand new can now buy 4 brand new Corollas, which is to say the Corolla has indeed gotten cheaper, dollars and rands have just lost value so fast it looks like prices have increased.

In ZAR terms you would have to invest that R1,214.29 with a solid compound growth of 11% for the entire 49 years just to maintain the equivalent purchasing power, while you could have thrown 30 ounces of your gold into the trash and still have equivalent purchasing power left … makes you think, or at least it makes me think, and worry, a lot.

Luckily we live in the country that mints one of the most widely recognized gold currencies on the planet, and they’re easy to acquire if you want some insurance (note, not investment, insurance) against rusty shower heads. It is the Kruger Rand of course:

Kruger Rand, gold ounce

Nothing short of physically being in possession of gold will be without counter party risk though, having said that, if you’re not worried about it, or you are willing to accept the risk in exchange for some 21st century convenience, there’s thankfully digital options like gold backed ETF’s or if you insist on a 1:1 deposit ratio and a debit card that let’s you spend your gold directly … I have an account with such a place … cue my shameless plug for Goldmoney.com

Whatever you do, consider hedging your investments, next time the finance minister is sacked, just have a pint at the pub and vent a bit with the warm fuzzy feeling of someone who will be ok when worse becomes worst.

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