Gold is the most popular precious metal to invest in, with investors buying gold as harbour or hedge in times in economic and other crises. Considering today’s harsh economic environment, finding out how to invest in gold in South Africa is a worthy consideration for investors. There are a number of ways for South Africans to invest in gold.
Gold is generally bought from banks by institutional investors and large buyers. London is the global hub of the spot gold market; and over $33 Billion in gold trades pass through London’s clearing system on a daily basis. It would be a risk to move the gold bars themselves, so deals are transacted with paper transfers. The other major markets for physical gold can be found in China, India, the Middle East, Singapore, Italy, Turkey and the United States.
Futures exchanges also allow investors to enter the gold market, as they can trade in contracts to sell or buy a commodity such as gold on at a previously fixed price on a certain date in the future.
When the gold price is high, many investors will be attracted to exchange-traded funds. These funds are backed up by physical metal as securities, allowing people exposure to the gold prices without actually taking possession of the gold itself in physical from.
Bars and coins
Gold bars and coins are sold in specialist shops and are open to retail investors. People interested in buying physical gold as an investment pay a premium of 5% to 20% above the current spot price. The price of the gold also depends on the current gold demand as well as the size of the gold product.
Investing in gold in South Africa
If you have a relatively small amount of money that you would like to invest in gold, you may wonder how to invest in gold in South Africa. There are two ways to invest in gold if you have a smaller investment; Krugerrands or Absa New Gold.
With the money at your disposal, you can start collecting Krugerrands which can be purchased from the South African Gold Coin Exchange (www.sagoldcoin.com). Depending on the gold price at the time, you can buy smaller Krugerrands (such as a 1/10 ounce coin) for about R900.
Another option is to invest in Absa New Gold, an exchange-trade fund that is listed on the Johannesburg Stock Exchange. This fund tracks the gold price and allows you to invest as little as R1000, or make a debit order of R300 per month. For more information, visit Absa’s website.
What drives the price of gold?
The price of gold is always fluctuating, depending on a number of factors such as:
- Investors: The greater the demand, the greater the price; and as interest in investing in gold rises, so does the price you pay for it… and vice versa.
- Foreign Exchange Rates: Gold is a popular hedge against the volatility of the currency market. The currency market plays a major role in setting the market price of gold, and as currencies become more unstable, the interest (and price) of gold increases.
- Oil Prices: Gold can also be used as a hedge against inflation caused by oil prices. Recent unrest in the Middle East has boosted both oil and gold prices.
- Central Bank Gold Reserves: Banks buying or selling gold can influence gold prices.
- Fiscal and Political Tensions: Gold is considered a safe investment, bought during times of political and economic uncertainty.
- Supply and Demand: Because gold is stocked in abundance over-ground, supply and demand are not as much a determining factor as with other commodities. In fact, stocks are estimated at about 167 000 tons, which is 60 times more than what is produced by mines annually. This is because gold is not consumed as rapidly as oil or copper.