THE price of gold could be expected to appreciate over the next 10 years or more at least at the same rate as governments were creating public debt, which was about 15% a year, Hilton Davies, the founder of SA Bullion, said yesterday.
Davies founded SA Bullion fund Management in 2005 as a business that buys Krugerrands from the Reserve Bank under a special licence and warehouses them at Rand Refinery for investors at costs that he said were comparable to those charged by exchange-traded funds.
SA Bullion had now announced a merger with Aurum Gold Investor Services, a business that retailed physical gold investments, including SA Bullion’s coins, Davies said.
The merged entity would be able to deal with a spectrum of clients ranging from institutions to small private investors.
Gold has been as volatile as other investments this year and its gain since starting the year at 866/oz has been only 7% to 927/oz this week and, in rands, a negative 8% move to R241357/kg. But Davies said he took a long-term view.
The main reason to invest in gold was not, as many bulls argued, to hedge against inflation but because it offered an alternative currency, he said.
For South Africans in particular there were very few currency options unless they were able to use their R2m foreign investment allowance. Most South Africans limited their currency exposure to rands.
With gold currently at R7500/oz compared with R10000/oz a few months ago, there was a great opportunity to invest, Davies said.
He considered it very unlikely the rand would continue to strengthen and, as the rand weakened, investment in Krugerrands would benefit. If the dollar weakened, gold also generally gained, although there was not a direct inverse relationship.
The main reason to invest in gold was that all other currencies were likely to come under pressure for many years, Davies said.
They would have to depreciate against gold because the consequences of many years of excessive lending were now being felt. This had been followed by a ballooning of government debt to finance rescue packages for banks and car manufacturers.
