The value of investing in gold

Mark wants to know how to value gold and whether investing in precious metals is a good long-term strategy: “I am trying to figure out if the price of gold has depreciated or appreciated in value, taking interest rates into consideration. I want to start an investment portfolio with a good grounding in gold, platinum or silver, so that one day I can decrease my interest rates for a mortgage on a house.”

Maya replies:
As Nick Kunze of BJM Private Client Services points out, the price of gold in rand terms has actually depreciated in value over the last few years. Kunze says he has a client who has been involved in a local gold mining company for 20 years and has waited all his life to see gold over $1 000 and yet he is losing more money now than when the price of gold was $800. And it’s all to do with the rand.

“If you compare the price of Krugerrands about a year ago with the spot gold price two years ago, it makes startling reading. At the beginning of March 2009, Krugerrands were trading at around R10 299 and the gold price was trading at $940. As of last night the price of Krugerrands was R8 589, a drop of 19%. As for the gold price, it closed last night at $1 149, an increase of 29%. The difference in the price movements is the rand/dollar exchange rate,” explains Kunze.

Kunze says, however, that it is wise to have some sort of exposure to platinum and other industrial base metals. “In a world where we will probably have to get used to a weak US dollar, commodities act as a good dollar hedge.”

Kunze says trying to deduct interest rates and factoring in inflation for the gold price is not that simple and it is best to look at gold almost like a currency.

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Maya Fisher French
Guest Author

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