Exposure to gold should be included in all diversified portfolios
Gold has been sought after for its unique blend of near indestructibility, beauty, rarity and because of its status as a means of exchange and universal currency par excellence for centuries. Empires and nations have sought to possess gold as a medium of international exchange, as a store of wealth and in order to increase and preserve power. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and to protect against other macroeconomic, systemic, geopolitical and monetary risks. Throughout history, perhaps no other asset in the world has had the universal appeal of gold and this appeal has increased in recent times due to the very significant macroeconomic, systemic, geopolitical and monetary risks facing our modern global financial system and economy. Successful investing is about the diversification and management of risk. In layman’s terms, this means not having all your eggs in one basket. We know from history that markets can and do crash and if you are not properly diversified your nest egg can be severely affected. The key is to determine what amount of each asset class to have and to own assets that will weather the onslaught of inflation, deflation, stagflation and even hyperinflation. Some exposure to gold should be included in all diversified portfolios. A good rule of thumb would be a minimum allocation of around 10% to gold and related gold investments. One’s motivation for buying gold is fundamental to deciding in which form you should buy it. Are you a speculator, investor or saver? Do you wish to take a short-term speculative position in gold? Are you investing for the short, medium or long term? Or are you diversifying, saving or using gold as a form of financial insurance? Article courtesy of A comprehensive guide to Investing in Gold by GoldCore
Why I prefer ‘more’ silver than gold
What is the ideal silver-to-gold balance in a healthy precious metals portfolio? Is it better to have more gold than silver or more silver than gold? Perhaps a 50:50 split is the best of both? This is a question that investors must consider, and it is a good question. The way investors structure their investment in silver and gold often depends on several variables, including the investment timeframe and aim, and the function of the investment. This is why there is no one-size-fits-all answer that will suit every investor. However, it is my opinion that silver is a better asset to own in the long term. There are few arguments that support my opinion. Silver outperforms gold in response to economic crisesBoth gold and silver typically react positively (in terms of price) to socio-economic crises. The Covid-19 pandemic is a typical example as the silver price doubled between March and August 2020, while the gold price increased by around 30% over the same period. Large investors flock to precious metals, looking for some sort of safe haven during negative economic predicaments. While gold is the metal that is typically first off the marks, silver generally ends the run with a higher price increase in percentage terms. Silver is not ‘regulated’Silver-Sphere is registered with the FIC. We are therefore not allowed to sell silver or gold Krugerrand without requesting a copy of the purchaser’s ID documents and proof of residence. The same does not apply to international silver products (NOTE: this also does not apply to Moon in-house silver products). Therefore, the privacy and anonymity of the purchaser is preserved. In this sense, silver is less regulated. For those who consider this an important aspect of precious metals ownership, silver is superior. Higher Industrial demand is positive for priceThis aspect of silver’s supremacy over gold relates to the ever-increasing industrial demand for silver. Silver is an indispensable metal, for it has thousands of essential industrial, medical, military and manufacturing uses. A case in point is the electronics industry. All electronic devices, including cell phones, computers and even hearing aids, hold a certain amount of silver; silver is the most electrically conductive metal on the planet. Even if the silver price were to shoot up into the stratosphere, Apple would still require a specific amount of silver to manufacture its electronic products, thus being forced to absorb the price increase. What is more, 95% of the silver used in electronic devices is lost and not recycled, unlike gold. Add to this equation the increasing demand from the solar panel manufacturing sector, and the tightening of the physical supply becomes unambiguous. Therefore, the demand for silver is not only constant but still increasing. Silver is affordable and user-friendly If you wished to own a single 1 oz. gold Krugerrand in September 2020, you would have to fork out close to R34 000. The smallest gold bullion Kruggerand is 1/10 of an ounce and is currently priced at over R3 800. By contrast, one unit or ounce of silver will cost you only around R650. This means that you need less wealth to own a unit of precious metal. Silver is thus better suited to smaller trades and purchases than gold. This makes silver popular with the average investor and trader. It is not illegal to melt silver No South African private citizen may own unrefined gold without a license. This includes gold dust, raw gold, gold nuggets or any gold that is not in the form of a finished product (coins, bars or jewellery). This does not apply to silver bullion products (including international bullion coins and bars, or locally manufactured bars and rounds). The only restriction on melting relates to legal tender coins (collections and bullion) issued by the South African Mint. While 99.9% of silver investors have no plans to melt their bullion coins or bars, it is worth recognising that if an industry is ever in need of silver, there should be no restrictions on investors selling to them for melting and use. The market for sellers broadens from selling merely to other investors to selling opportunities in numerous industries. Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
What silver bullion products should you buy?
The 70:30 ratiosSo what is the best way to structure the silver portion of the bullion portfolio? The answer to this question depends on several factors. For example, do you wish to make a one-off substantial purchase? Do you wish to make a substantial purchase initially and then add to your position regularly? Perhaps you want to enter cautiously and simply make a periodic purchase to take advantage of average costing over a long period? Whatever your strategy, my recommendation is based on the 70:30 principle of demand, recognisability and diversification. This is not a mainstream economic principle per se but an approach built on my experience of the local silver market over the past 10 years. In short, I believe that a balanced silver bullion portfolio should be structured as follows: 70% composed of the big five silver bullion coins (the American Eagle, Canadian Maple, South African Krugerrand, Australian Kangaroo and British Britannia) and 30% of other coins, bars and rounds of various sizes minted by internationally recognized and trusted mints and refineries. The importance of the 70%My product range business model is not rooted in identifying and then subsequently pushing and marketing a particular silver bullion product. Rather, I import trusted silver bullion products that are in high demand both nationally and internationally. Eagle and Maple coins are by far the most favoured bullion coins in the world measured by demand – nothing comes close to these in terms of numbers sold each year. For example, the US Mint produced and sold over 45 million Silver Eagle in 2015, and the Royal Canadian Mint sold over 30 million Silver Maples over the same period. However, the silver Krugerrand has changed the local structure of the silver bullion market in South Africa. In fact, over the past year, the silver Krugerrand has overtaken the Eagle and Maple in terms of coins sold. How is that for proudly South African! This is why I propose to clients that they commit at least 70% of their silver bullion portfolio to these three silver coins, perhaps with the largest portion devoted to the silver Krugerrand. Having observed the distribution of bullion coins for many years, I have seen the silver Krugerrand become extremely popular not only locally but also internationally. The Krugerrand is one of the most trusted brands in the world of bullion investing and should thus earn the number one spot in the 70% portion of your portfolio. My chief motivation for the 70:30 ratio is based on the hypothesis that it is easier and quicker to find buyers for these five coins than for other less-favoured coins or other semi-numismatic bullion coins such as the Australian Silver Kookaburra or the Chinese Silver Panda. I am in no way saying that you should abandon other types of bullion coins; both the Kookaburra and the Panda have gained a rather healthy collectable premium on earlier releases. I am simply suggesting that, first of all, the bulk of your portfolio should hold one or all of the big five silver products that are in highest demand. Secondly, should you decide to resell your silver back to me, your product would have a ratio that is similar to my sales-demand ratio. For example, if a client were to offer to sell back a monster box of 500 silver Krugerrand, I would almost certainly take it right away. I sell numerous monster boxes regularly, so I have to replenish my stock back. If you offered 500 Chinese Pandas, it is likely that I would only take 50 to 100 at the time since I sell hundreds of times more Krugerrand. So, as an investor, ensure you devote the largest portion of your portfolio to the most trusted and liquid products. Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
Why Platinum is not a popular investment – but should be
Platinum wasn’t historically used as moneyFrom the earliest human civilization, silver and gold were used as money. In fact up to the middle of the 1960’s the South African R1, 50c, 20c and 10c circulation coins contained 90% silver. In other words, silver was (and still is) money. The same applies to gold, although the last gold coins were removed from circulation in the early 1900s. Platinum has very little history as money. When it was initially discovered in 700 BCE in Egypt, it was utilized for decorative purposes. In modern times, it has been seen primarily as metal with industrial uses, with some application in jewellery, but even less for bullion investing. It seems that the precious metal investment community does not see platinum as money or as a store of value like its cousins gold and silver. This may be one reason why platinum bullion products lag far behind silver and gold. Although this may seem a little illogical, investors make decisions based on experience, intuition and instinct. From an investor’s perspective, platinum is often seen as an expensive form of silver. The psychological connection between precious metals and their use as money is therefore important. It is almost natural to make the association with silver and gold (especially if you were alive when silver was still in circulation in coins), but I think it may be less so with platinum. Decreasing use in the automotive industryA few decades ago, platinum was used in almost all catalytic converters. This may have been one of the main contributors to escalating prices. In response, manufacturing began to look for cheaper alternatives and found palladium to be a suitable substitute. This started to drive platinum down and palladium prices up (a typical demand-and-supply dynamic). More seriously, almost 50% of the platinum mined yearly goes to catalytic converters. As diesel engine is slowly becoming unfashionable and electric cars have become all the rage, the picture for platinum is not rosy. Why the platinum price should increaseI have painted a rather bleak picture for platinum in these pages. You may be tempted to conclude that, indeed, staying away from platinum is wise. However, I propose that there are two future possibilities for platinum. The first is that the industrial use of platinum will continue to decrease as the world moves away from internal combustion engines to electric vehicles. In this scenario, platinum will remain an expensive metal with little industrial value (as opposed to silver, which is available at a fraction of the price), used primarily for jewellery and dentistry. Platinum mining will decrease as a result of decreasing demand, and so will its price. Again, supply–and–demand dynamics are at play. However, I believe this scenario is not very likely. The second scenario is the opposite of the one I just described. Perhaps the lack of demand may lead to a serious dip in production and platinum may become scarce(er). Scarcity is generally an important dimension of price recovery, and so this possibility may indeed act as a catalyst for demand, especially from investors. Prices will then rise. Moreover, palladium has increased in price exponentially in the past few years. Because palladium is a by-product of platinum mining, and palladium is more expensive than platinum, platinum seems to be poised for an increase. In this same scenario, it is possible that, in the short term, manufacturers will revert to platinum in their catalytic converters, since palladium, which was priced below platinum, is now double the price of platinum. This may rocket the price upwards. Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
