Gold as Currency in an Investment Portfolio

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Gold as Currency in an Investment Portfolio

  1. 1. How to include physical Gold Bullion as a currency in an Investment Portfolio
  2. 2. Physical gold bullion Where the smart money is moving <ul><li>Investment flows into gold bullion up 1,800% </li></ul><ul><li>32.48 $Bn of gold was purchased in 2008. </li></ul><ul><li>Gold has unique qualities that are driving investment demand for gold to increasingly higher levels. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  3. 3. Investment qualities of gold High levels of liquidity <ul><li>Gold is one of the deepest commodity markets with the highest levels of liquidity, second only to oil. </li></ul><ul><li>Gold can be traded around the clock in greater size, at narrower spreads, and more rapidly than many mainstream investments. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  4. 4. Investment qualities of gold Market risk and Portfolio diversification <ul><li>Gold and mainstream financial assets have negligible correlation </li></ul><ul><li>Why? </li></ul><ul><li>Returns on gold are not correlated to economic activity </li></ul><ul><li>Returns on mainstream financial assets are positively correlated to economic activity </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  5. 5. Investment Qualities of Gold Credit/Counterparty risk overview <ul><li>Most conventional portfolio’s consist of cash, bonds and equities and all of these asset classes contain varying degrees of credit risk. </li></ul><ul><li>Physical gold holds no credit risk/counterparty risk – this is because title held physical gold is the investors asset and no one else’s liability. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  6. 6. Paper gold vs Physical gold <ul><li>Examples include: </li></ul><ul><ul><li>gold exchange traded funds </li></ul></ul><ul><ul><li>mint-backed certificates </li></ul></ul><ul><ul><li>gold accounts </li></ul></ul><ul><li>Paper gold tracks the movement in the gold price but similar to equities, paper gold contains exposure to credit and counterparty risks. </li></ul><ul><li>Title owned physical gold does not. </li></ul><ul><li>This places paper gold and title owned physical gold into different asset classes. </li></ul><ul><li>Paper gold should be treated as a component of an equity portfolio, not cash. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  7. 7. Owning physical gold in South Africa <ul><li>The Precious Metals Act </li></ul><ul><li>Krugerrands or minted bars </li></ul><ul><li>Differences between ‘proof’ Krugerrand and ‘bullion’ Krugerrand. </li></ul><ul><li>The Bullion Krugerrand is VAT exempt </li></ul><ul><li>14% VAT renders all other minted bar uneconomical </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  8. 8. The Bullion Krugerrand Legal Tender gold currency <ul><li>Introduced in 1967 </li></ul><ul><li>Is legal tender and therefore uniquely VAT exempt </li></ul><ul><li>Derives its value from the gold content. </li></ul><ul><li>Underwritten by the South African Reserve Bank therefore 100% liquidity. </li></ul><ul><li>Priced In US Dollars and provides a Rand hedge </li></ul><ul><li>56 Million ounces in circulation </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  9. 9. Taxation of Krugerrands <ul><li>The sale of Krugerrands will be taxed as a capital gain provided that; </li></ul><ul><li>The Investor can prove his intention for the investment </li></ul><ul><li>was ‘ for keeps ’. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  10. 10. The role of SA Bullion Creating an investment proposition in physical gold <ul><li>SA Bullion recognised the Krugerrand as the ideal instrument for investing in legal tender gold bullion </li></ul><ul><li>The Krugerrand offers not only pure gold exposure but also specific legal status qualifying it as a compelling currency alternative </li></ul><ul><li>SA Bullion has concluded unique agreements with the South African Reserve Bank and Rand Refinery Limited that enable an economically viable method to make investments into physical legal tender gold bullion </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  11. 11. The role of SA Bullion Supply constraints of Bullion Krugerrands <ul><li>The annual worldwide supply of bullion Krugerrands is regulated by the minister of finance </li></ul><ul><li>This limit has been set at 500 000 ounces per annum. (approximately ZAR 4 Billion) </li></ul><ul><li>Worlwide demand massively exceeds supply </li></ul><ul><li>SA Bullion has been granted a special supply dispensation by the South African Reserve Bank </li></ul><ul><li>In 2010, SA Bullion’s supply dispensation will exceed the worldwide supply of bullion Krugerrands. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  12. 12. The role of SA Bullion Reducing all transactional costs to a minimum <ul><li>Reducing the acquisition and redemption cost. </li></ul><ul><li>SA Bullion has reduced the buy-sell spread from 25% to 4.5%. </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  13. 13. The role of SA Bullion Providing a value-added custody service <ul><li>Vaulting at Rand Refinery in the investor’s name </li></ul><ul><li>Comprehensive insurance with Lloyds of London </li></ul><ul><li>Investor administration and reporting </li></ul><ul><li>Audit by </li></ul><ul><ul><li>SA Bullion: Ernst and Young </li></ul></ul><ul><ul><li>RRL: Deloitte </li></ul></ul><ul><li>Supervision by FSB and SARB </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio
  14. 14. South African Investors Choices for holding cash <ul><li>Bank deposits or money market instruments </li></ul><ul><li>Foreign currency by using the R 2 million offshore allowance. </li></ul><ul><li>Legal tender gold bullion with SA Bullion </li></ul><ul><li>Turn Rands into Krugerrands </li></ul>How to include physical gold bullion as a currency in an Investment Portfolio

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