The real historic strength of an investment in Gold has been the metal’s ability to withstand crises and provide protection against volatility. For South African investors in particular, the current value of the ZAR (Rand) presents an excellent opportunity to either add to your existing investments or diversify your holdings into the metal. Although the Rand remains a highly volatile emerging market currency, this last period has seen a weakening of the USD and a substantial recovery for the Rand from its recent lows.
Weaker economic data on the US Jobs front has supported a view that the US Fed is unlikely to begin its tapering programme in the immediate future and even if it does, it is also unlikely to raise interest rates given softer economic conditions resulting from the rising Delta variant numbers.
There is therefore a really important opportunity for investors to use this moment of a stronger ZAR to buy into the metals market. Emerging market currencies are likely to remain relatively buoyant since interest rates in their home countries are now attracting foreign investors. With US interest rates likely to remain subdued – and the fear of rates rises – on the back-burner, the stronger Rand is a favourable indicator for investors.
To this end, we have seen foreign investors resume the buying of South African bonds which offers higher rates of interest than those in the US. This ‘carry-trade’ as it is known, helps with the inflow of Dollars into the country and has strengthened the ZAR. The Rand has also been buoyed by a recalculation of the South Africa’s Gross Domestic Product (GDP) which will show a statistical improvement on debt levels. This too helps the Rand.
Remember, investments in a USD-denominated investment like Gold or Silver affords an investor protection against the Rand should it weaken. It is an important ‘hedge’ investment that diversifies a portfolio out of Rands and into USD exposure via Gold (and Silver). But, the current stronger Rand is a real window of opportunity for investors in metals and historic charts prove the protection of a portfolio that expands into Gold at times of Rand strength.
