There are many variables that influence the price of Gold at any given time. Studying the past for potential clues, with regards to its potential future standing, is advised. Yet, it seems to be much more complex than to do merely that. For history has a sense of repeating itself, but change remains nothing if not a constant. In keeping a keen eye on its price fluctuation, it is interesting to note that Gold has retreated from its recent high of just over $1900.
In trying to bring some perspective on its fluctuation/s for all those interested, we have stipulated 2 factors beneath, which play a vital role in bringing it forth within a South African context, even if its origin lies elsewhere.
1) In the United States of America, the non-farm payrolls added 559,000 jobs in the month of May 2021. This was a tremendous rebound from the concerning 300,000 which were reported in the month of April 2021. With the US unemployment rate having now dropped to 5.8%, it seemed that the markets were stabilizing, but had some interesting turn of events in the last two weeks.
2) The Gold price is more often than not, directly correlated with the stability of the US market. With the US Federal Reserve predicting that the inflation would most probably stay above the 3% mark for the rest of this year and therefore much higher than the previously expected 2%. This left many investors surprised with their official announcement of an earlier than anticipated interest rate increase, in 2023.
Within the South African context
The Rand has recently strengthened against the USD towards the start of June 2021, as well as foreign capital invested in South Africa by means of commodity exports. However, one can only but speculate, with great scepticism, with regards to its future, as it suffered losses toward mid-June 2021.
Gold’s Rand-Hedge aspect (the ability to protect one’s investment against a weakening currency over any given time), remains its main selling point. History does in fact speak for itself, in proving that Gold holds its value brilliantly against both the US Dollar and the South African Rand. Investing in Gold, therefore, still continues to be a very good investment, especially against a weakening Rand.
It is important to note that a Krugerrand investment is not just ‘Rand-Hedge’ related. For holding/owning a Gold coin, as history once more has proven, can and more often than not “will” outperform many of the well-celebrated equities of our time. From an investment point of view, owning Gold is, therefore, nothing short of a brilliant idea – especially in light of investment diversification.
From the perspective of a South African investor, the following: Owning a Gold or Silver coin, will most likely continue to out-perform e.g., mining shares. For the latter, especially in a South African context, has faced many challenges of late, e.g., loadshedding, labour regulations, rising input costs, etc. All of these play a major role in the profitability of the mines in question, and therefore also on the mining stocks itself – making Gold and Silver a highly desirable commodity.