Why South Africans invest in silver & gold: the security of retirement in ounces
It is an interesting exercise to think of buying silver and gold as a supplementary strategy for saving or investing for retirement. My clients have often expressed confidence and delighted in the number of ounces of gold and silver they have relative to what they require to retire. However, allow me to add a preamble to this statement. First, I am not advocating that you hold all your retirement funds and savings in precious metals. I am simply bringing your attention to the retirement value of the precious metals portion of your retirement savings. Second, I concede that retirement savings and policies are complex. Many average South Africans don’t really understand them until their retirement day when most end up disappointed about the returns and the payout. Many realize only then that they have enough to live comfortably into their seventies, perhaps, but not into their eighties. Last, I am not a financial advisor. I am merely providing an alternative, measurable way of looking at retirement savings that is more nuanced than the traditional metrics provided by mainstream financial consultations. Every time investors acquire an ounce or two of gold in the form of a Krugerrand, they have (relative to their earnings and standards of living) bought a one-month unit of retirement. Every time an investor acquires two or three tubes of silver Krugerrands (25 coins per tube, totalling 75 silver coins), Maples, or Eagles, they have purchased over one month’s worth of retirement. What a fun way of keeping track of your future retirement prospects! Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
Why South Africans invest in silver & gold: The scarcity of silver in South Africa
Forbes has estimated that President Ramophosa’s wealth is almost R7 billion. This means that he could purchase South Africa’s yearly silver production seven times over, or buy every ounce of silver mined over the next seven years. This demonstrates, first of all, how ludicrously rich the president is and how little silver South Africa produces each year. Whichever way we look at this, it seems that even if investing in silver becomes more mainstream in South Africa, the availability of locally mined silver for investment purposes will be relatively low. Given how little silver South Africa produces, my clients have become very aware of the importance of owning silver, in particular. It seems to be a prudent investment strategy within the context of scarcity. It may come as a surprise that South Africa silver bullion Krugerrand (which was launched in 2018) is not minted locally. But in light of the scarcity of silver, this should be obvious. My conservative estimate is that the number of silver Kruggerands sold year to year in 2018 and 2019 totalled around 5 to 10 million ounces. The yearly amount of silver mined in South Africa lies at around 2 million ounces. This is yearly not enough to meet the global demand for our bullion coin. Moreover, I suspect that about 2% (at most) of the world’s demand for silver Krugerrands is local. It makes no financial sense to import the silver required to mint the volumes needed in international markets, and then export 98% of the minted coins. Rather, it makes more sense to buy the necessary silver volumes from the manufacturing nation, outsource the minting, and import the required volume into the local market. Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
Why South Africans invest in silver & gold: suspicion of cryptocurrencies
Blockchain technology and cryptocurrencies are all the rage these days. Investors have flocked to Bitcoin and alternative crypto in droves. Some have made huge profits. In fact, I believe there are still profits to be made in the near future, although no one really knows where prices will head. But crypto is a highly volatile speculative digital ‘asset’ and no one should be surprised at large gains or losses. It is obvious, too, that prices are often driven by frenzied investors suffering from fear of missing out, so the greater fool theory probably applies to this kind of investment – there will always be someone who invests later and is willing to pay an even higher price than the previous investor. I have even observed some investors having so much faith in Bitcoins and the like that they sell their silver and gold and jump ship to crypto. Many did so even though it means losing money (at least initially). This is normal behaviour in the investment world, where scores of investors jump from non-performing investments to better-performing ones, or to investments to better fundamentals for higher returns. But selling precious metals – investments you can hold and touch – for digital assets that exist only in the digital world seems a poor decision to me. Some investors believe that the crypto bubble will pop, deflate, or become overregulated and that those who earned healthy profits will eventually reconsider silver and gold. I agree with this sentiment. But when this happens, silver and gold premiums will increase, as production and supply will hit a short squeeze. A large portion of cryptocurrency profit earners will then start chasing silver and gold, while precious metal investors will be happy that they are already holding what has fallen into short supply. Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
Why South Africans invest in silver & gold: No Counterparty Risk
A counterparty is a party with whom you enter into a transaction. If party A sells something to party B, then B is a counterparty from As point of view and vice versa. For example, even if you own your car outright, or have the title deed to your house, you are still liable to pay tax on those assets. Although you own them, there is a counterparty risk – also known as default risk – the need to rely on someone else to fulfil a promise for your asset to maintain its value. Unlike the old tables of clay with written promises to pay back the creditor, or fiat currency notes that the government promises are worth a certain value, purchasing physical bullion permits direct ownership of value without counterparty risk. In other words, silver and gold are held by the creditor and, given that the value of the silver and gold is known and accepted everywhere, the value is redeemable anywhere. This is true even if the person who paid by means of these metals is far away, untrustworthy or dead. It is generally true that precious metal investors desire this characteristic in an investment above almost anything else. All investments that are characterised by inherent counterparty risk (such as fiat) currencies can never be considered money in the purest sense of the word. The lack of counterparty risks makes silver and gold particularly attractive to forward-thinking and judicious investors who understand the long-term consequences of investing in assets that have counterparty risks (units trusts, annuities, shares and so on). Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
