Georgie Engelbrecht

Wow, so much can happen in a week! In seven short days I have relocated to another hemisphere and hey-ho the wicked youth league leader is almost powerless. Very momentous indeed and so, in celebration, I propose we follow the yellow brick road. This week’s investment avenue has been inspired not only by my recent move to Mumbai but also in honour of my home town of Johannesburg as well as the Mining Indaba going on this week in Cape Town. That’s right ladies and gents; the time has come to look at ways of investing in gold.

The idea of investing in gold has crossed many a mind of late. Even if you had never previously considered it, the meteoric rise in the price of gold last year put the yellow metal on the radar of even the equity-only investor. Firstly though, it’s important to understand why the price of gold went up so dramatically.

Gold always trumps

Gold is very often referred to as a safe-haven, an investment bought to hedge against economic, political and social fiat currency crisis. And wouldn’t you know it the last couple of years have seen an increase in all three of those risks. Enter the whole eurozone saga as well as the crisis in the US and everything is connected again. Don’t worry, we won’t go too far into the details of what drives the gold price, the major take away here is that when things seem uncertain, the gold price generally appreciates.

Right, as it happens, you and I are the cautious type and of the mind that even if things aren’t as bad as they seem overseas, a little bit of portfolio diversification into gold won’t be a bad idea at all. But now, how? Well, I’m a girl that likes to give options and there are quite a few options when investing in gold.

First up you can speculate on the price of gold, large institutional investors get their hands on the yellow metal through the big banks (I have visions of Scrooge McDuck swimming through his vault), but we aren’t institutional investors so an easier way to speculate on the price of gold is through the futures or derivatives market. This then gives you the ability to buy or sell gold contracts depending on whether or not you expect the price of the commodity to go up or down. You can also leverage your investment this way but chances are you won’t be taking delivery of the actual metal.

From rings to Kruger Rands

For the investor who likes a little more safety but would also like more flexibility than a nugget of solid gold would provide, there are exchange-traded funds. ETFs have grown in popularity lately and the most popular with regard to the gold market is NewGold. This trades as a normal stock would trade but gives you exposure to the rand/gold price as opposed to the dollar/gold price. Each NewGold security is equivalent to approximately 1/100 ounces of gold bullion and is held in a secure depository on behalf of investors. Accordingly, each security is backed by physical gold and the value of a NewGold ETF security will rise or fall in accordance with the fluctuations in the rand price of gold bullion.

Lastly, if the idea of solid gold does make your eyes glitter, then there are various ways of purchasing the metal in larger size than just rings and trinkets. Various speciality stores as well as online shops sell gold bars and coins. If you bank with FNB you will have seen their option to buy Kruger Rands on their website.

So as they say, where there’s a will, there’s a way and if your will isn’t quite strong enough to help you pick up that gold bar displayed at GoldReef City with just two fingers, perhaps my options will be a little more to your will’s capabilities.