Award-winning economist Dawie Roodt said he is not a fan of investing in gold but highlighted a few instances where it can make sense.
Over the past 50 years, the value of gold in rand has increased by over 100,000%. A decline in the value of the rand partly drove this.
In 1970, an ounce of gold cost R28.90. Fast forward 53 years, and the price for an ounce of gold increased to R38,000.
Despite gold’s great run over the last few decades, Roodt prefers other asset classes like equities over gold.
The main reason is that gold is not a productive asset. “If you buy a Krugerrand today, it will still just be one Krugerrand in a year’s time,” he said.
So, while the value of gold may increase over time, it is not an asset like buying shares in a company that pays dividends.
“I don’t like gold as an investment because it does not give you a return. It may give you capital protection, but not a return like dividends,” he said.
However, he added that there are a few situations where gold can be a suitable investment.
The first is when the US dollar price of gold starts increasing because of high inflation in the United States.
“Gold is priced in US dollars. If there is high inflation in the United States, there is a good chance the price of gold will increase,” he said.
The second reason to buy gold is that it makes it possible to carry it with you when you want to flee a region.
“You can take gold, put it in a case, jump on an aeroplane, and leave the country. You can, therefore, flee with your investment,” he said.
Roodt said that for investors who like gold, he would advise them to buy shares in gold-producing companies rather than the metal itself.
“When you buy gold shares, you will at least get a dividend and still benefit from a rising gold price,” he said.
Numerous gold miners are listed on the JSE, including AngloGold Ashanti, Gold Fields, Harmony Gold, and DRD Gold.
Over the last year, the price of gold has increased from $1,920 per ounce to around $2,020 per ounce.
Many JSE-listed gold miners outperformed the price of gold. Harmony Gold’s share price increased by 61%, and Gold Fields’ share price increased by 16%.
However, AngloGold Ashanti and DRD Gold’s shares performed worse than the gold price. It should be noted that dividends were not taken into account.