Gold should be included in your portfolio because it behaves and reacts differently to other asset classes. It is a particularly beneficial asset to hold in times of volatility as it is typically considered as a safe haven because its value generally does not fall during times of uncertainty in the market.
“Gold is a precious metal and as such its value is not influenced by the same factors that impact other asset classes. Gold could be held along with other asset classes such as equities, bonds, property and cash as a means of diversifying,” says Chantal Marx, head of research at FNB Securities.
Gold also offers protection against a weakening local currency. For example, if you are invested in Krugerrands and the rand depreciates, you are protected against any losses because gold is US Dollar denominated, in essence its value increases when the rand falters.
But gold is not considered a short term investment so it’s important to hold onto it for a while before selling. It’s not the type of investment that would give you major returns in a short space of time.
“If you have a well-diversified portfolio, which includes gold, you will be buffered against adverse market movements because prices of different asset classes rarely move together. If for example, equity prices fall, bond prices may move up, property prices would not be impacted as much, and gold could end up being stable,” says Marx.
How can you invest in gold?
There are various ways you can invest in gold. With FNB, for example, it’s quite straightforward. “Through the FNB Share Investing platform, FNB has made it easy to invest in gold via its Online Banking or the FNB Banking App where prospective investors have an option to invest in gold by purchasing Krugerrands or through Exchange Traded Funds. However, it’s also important to seek advice regarding your exposure to gold so that you do not end up with an overly conservative portfolio,” adds Marx.
You don’t have to be directly invested in gold to benefit from it. You could, for example, invest in companies that mine gold or are exposed to gold in other ways, such as AngloGold Ashanti, Central Rand Gold and Sibanye Gold to name a few. All are listed so you can invest in them through share platforms like Easy Equities.
“This is an opportunity for South Africans to look outside the normal investment vehicle and buy into something that is designed to preserve wealth. In a low growth economy, measured diversification could help you to stay on track towards realising your financial goals,” adds FNB.
Handy tip: For more about investing in gold, click here.