Batanai Matsika PIGGY has noted with interest that the norm amongst most investors all over the world is that they tend to buy and hold gold during periods of uncertainty.
This includes periods when there are geopolitical risks, such as the Russian/Ukraine war as well as global pandemics.
Another trend is that investors are increasingly looking at alternative investments and new categories of “things” or “valuable objects” that offer protection against a loss in the purchasing power of currencies.
Gold can be viewed as an alternative to traditional investment assets, such as shares and bonds. Investors can invest in gold through exchange-traded funds (ETFs) or buying a physical product such as a gold coin.
The Reserve Bank of Zimbabwe (RBZ) has indicated that it will soon introduce gold coins into the market as a store of value. The gold coins will be called the Mosi-Oa-Tunya and will weigh one troy ounce with purity of 22 carats.
Mosi-oa-Tunya means “Smoke that Thunders” and refers to the Victoria Falls, which is among the most spectacular waterfalls in the world. Other features of the coin include liquid and prescribed asset status. According to the Central Bank, the gold coins will be available for sale to the public from July 25 2022 in both local currency (ZWL) and United States Dollars (USD) (and other foreign currencies) at a price based on the prevailing international price of gold and the cost of production. Piggy believes that it is a positive development since it broadens the universe of investable assets for investors.
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Zimbabwe is not the first country to introduce gold coins. According to the Gold Bars Worldwide, countries with gold coins include South Africa with its Krugerrand gold coins, Australia has Australian Kangaroo, the United States has the American Eagle, Canada has the Maple Leaf and Austria has the Vienna Philharmonic. Krugerrands, for example were first minted by the Republic of South Africa in 1967 to help promote South African gold to the international markets and to make it possible for individuals to own gold.
Krugerrands are among the most frequently traded gold coins in the world market.
The big question amongst retail and institutional investors is whether the Mosi-Oa-Tunya Gold Coin would be a good investment? The point here is that there has been a significant global shift to gold amongst Central Banks.
According to the World Gold Council, central banks around the world are increasing the gold they hold in foreign exchange reserves, as they have built up their gold reserves by more than 4 500 tonnes over the past decade.
The value of the US dollar against gold has also dropped sharply over the last decade as large-scale monetary relaxation has kept boosting the supply of US dollars.
According to S&P Global, gold prices have been supported by multidecade-high inflation rates in many developed countries. In addition, US real yields have remained in negative territory because of low nominal interest rates which supports the case for gold investment.
The gold price outlook for the short term is expected to fluctuate around US$1 900/oz due to the current geopolitical and macro-economic uncertainties.
As interest rates rise, prices are expected to average around US$1 825/oz by late 2022 before ending a five-year forecast horizon closer to US$1 700/oz.
The Mosi-Oa-Tunya Gold Coin should be seen as an alternative investment to USD, stock market and properties market. Generally, a gold coin is amongst the most preferred choices of investment.
It is a low-risk investment option that offers better security. Gold is also a tangible asset and has always commanded a good market value for centuries. Some of the benefits of investing in gold coins are as follows:
Gold is a safe-haven asset. Global investors typically look at gold as a haven during times of political and economic uncertainty. History is full of collapsing empires, political coups, and the collapse of currencies. During such times, investors who held gold were able to successfully protect their wealth.
Gold is a good hedge against inflation. Gold is an alternative to currencies, particularly where the native currency loses its value. Gold is a real physical asset that tends to hold its value in the market.
No maintenance is required. Unlike other tangible assets, investors in gold coins do not need to worry about its maintenance to get the best returns.
Gold is a diversifying investment. Gold can add a diversifying component to investment portfolios. Gold prices are not directly correlated to stocks, bonds and real estate.
Gold is easily transferable. Once bought, gold coins can be easily passed on to generations. This is what has been traditionally happening within families.
Overall, buying gold coins is definitely a good way to save money for those who cannot do so in currency. Gold has been able to successfully preserve wealth throughout thousands of generations. The same, however, cannot be said for the paper-denominated currency. Piggy recommends investors to park ZWL balances in gold coins as soon as they become available. Inflationary pressures and the instability of the local currency unit clearly cement the investment case in the Mosi-Oa-Tunya Gold Coin.
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- Matsika is the head of research at Morgan & Co, and founder of piggybankadvisor.com. — batanai@morganzim.com/ batanai@piggybankadvisor.com or +263 783 584 745.