Yesterday, my longest standing friend, from school days and investor in precious metals, Kurt Mälzer, asked me, Will the rand continue to strengthen?
This was my reply. I don’t pretend to know what the rand can and will do.
What I do know is that according to Dawie Roodt, the Efficient Group’s economist, who is on the RSG radio every weekday morning, (06h55) says the rand is 50% undervalued.
He likes to use the Big Mac’s (hamburger) price as a way of comparing purchasing parity. A big Mac burger is very cheap in rand terms. He is optimistic about the rand. By the same token he will be quick to acknowledge there are many other structual factors in SA that keep it weak, such as Eskom’s lack of sufficient power provision. In addition, our incompetence in shipping (rail and shipment) of our commodities to the world.
My best bench mark is against the Aussie dollar. We are both commodity based countries. The rand is strengthening against it of late. This tells me that other currencies may be experiencing weakness, but the rand is strengthening.
The rand was almost R13 to AUSD now it is R 11,69. This is roughly 10% strengthening of the rand. Please see the one year chart.
I do know we go through seasons when our exports exceed our imports, then the rand strengthens. We saw this when we had the commodity boom of late.
Peter George, my dear economist friend, who is now decreased for 10 years, was a rand bull based on the rising price of gold. He said, “There is a high correlation between the rising price of gold and the rand’s value.” He has been corrrect many times in the past. I think he will be right again. As we begin to see a surge in the gold price, we can expect to see continued rand strength. I think we are getting closer there.
Gold remains the world’s best currency. Therefore the purchase of Krugerrand’s is my best way of acquiring protection against ALL fiat currencies that are being debased and rapidly losing their value.
Is a strong rand good for gold? No. But I am looking for a much higher gold price going forward.
Not because gold is so good and rising in price, but rather because the fiat currencies are so weak.
May you know much wisdom and understanding in determining your best way forward.
Courtesy of David Melvill on 31 July
