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Demby Predicts Krugerrand Will Remain Strong
 | By World Coin News
March 13, 2009 |
South Africa's gold Krugerrand has soared through the 10,000 rand mark, rewarding investors who several months back anticipated the global financial turmoil that has driven the rand price of the yellow metal into orbit.
Technically, the surge can be directly ascribed to a combination of an advancing dollar gold price and a weakening rand, according to the South African Gold Coin Exchange.
Alan Demby, SAGCE executive chairman, says that the flight to a reliable store of value has resulted in investors, domestically and abroad, stampeding into Krugerrands.
"Based on current demand levels, SAGCE's sales have been running at levels in excess of R100 million a month," said Demby. "We have accordingly increased our 2009 sales target to an admittedly conservative R1 billion. Investors are scared. Aware that gold is the ultimate store of value, concerned South Africans are piling into KRs and Nelson Mandela gold medallions. Record stock market lows are translating into record highs for gold and KRs."
Demby suggests that a large number of canny investors have been switching from equities into KRs, especially in the past six months.
"The smart money has carefully digested the fact that in the past six months the JSE All Share index has slumped by 30 percent, while the price of a KR has soared by 64 percent over the same period. And bear in mind that the All Share is somewhat buffered by a firm gold share index."
Demby refers to similar phenomena throughout the world.
"British media have been carrying stories on the flight from cash to gold in the wake of concern over the safety of the banking system," he said. "Here the concern is more over the value of the currency than the banking system. Even so, widespread uncertainty is prompting investors the world over to accumulate gold as the only tried and tested safe haven."
He draws attention to a new trend among investors in the form of KR rand cost averaging a concept that is the butter on the bread of unit trust investing.
Demby says a growing number of investors are setting aside funds to buy a KR every month in the expectation that their capital will grow handsomely in the long term.
"The reasoning behind this approach in a unit trust context is that all equity markets gain ground in the long term. In the process, though, there are setbacks; corrections that depress prices to levels below the advancing long term equilibrium line.
"It is during these bear phases that additional units accrue to a level monthly investment. Their depressed prices mean that more units can be bought for the same sum of money applied for this purpose in previous months."
Consequently, when a subsequent bull phase materializes, investors benefit from the extra units acquired at lower, bear market prices.
"The real beauty is that the investor applying rand cost averaging need not suffer the trauma of having to time the market correctly."
Demby says that while a great many unit trust investors appreciate the advantages of rand cost averaging, few apply the principle to other investment mediums.
"Several of our clients have a standing order to buy a KR a month on the same day of every month. Some have been doing it for longer than others. The former are reaping impressive rewards."
Demby urged more investors to see the light.
He advanced two possible reasons for the relatively muted enthusiasm for KR rand cost averaging:
-- At nearly R10,000 apiece, a fairly substantial sum of money must be set aside every month, though Demby points out that half- and quarter-KRs are obvious alternatives
-- Unlike the identical monthly debit order applied to unit trust rand cost averaging, the price of a KR differs from month to month, which means that outlays also differ. However, short-term price variations are seldom severe.
The SAGCE is one of the few organizations in South Africa that operates systems geared efficiently to handle regular monthly KR investments, Demby said.
Looking ahead, he predicts ongoing KR strength.
"Prospective investors in KRs have not missed the boat. As the global financial crisis deepens, as it is surely bound to do, gold bullion will continue to advance," he said. "At the same time, South Africa's inflation differential and the risk perceptions attaching to emerging market economies will likely witness ongoing rand weakness."
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