While the firing of former Finance Minister Pravin Gordhan sparked off a weakness in the rand and the country’s subsequent downgrade to junk status by S&P and Fitch, there has been some seeming collateral benefit to #Zumicon. As financial advisor David Melvill outlines below, the weakness of the rand, as well as a stronger gold price, have combined to give Krugerrand owners some reasonable short-term returns. Take a read through David Melvill’s analysis below. – Gareth van Zyl
By David Melvill*
Please allow me to illustrate the change to the value of your portfolio based on the “firing” of the Minister of Finance, Pravin Gordhan.
As a direct result of this act we saw the rapid depreciation of the rand. It has remained strong and continued its secure trend for well more than a year. All hope was dashed with his removal from office. We witnessed the rand in free fall; it went from below R12.50 to almost R14 (a loss of 12%) in double quick time.
Since then it has pulled back a little, as it over-corrected. This is illustrated in the Dollar/Rand chart over the last 12 months here below:
For some time now I have warned about the effect of the strong rand and the influence it has on the lowering of the value of your gold portfolio, as it powered its way this last year. As your portfolio is measured in rands ultimately, it has been very detrimental. Hence we have had the need to see a far stronger gold dollar price, and that is what we have sought.
The table below illustrates the value of your portfolio at month end (31st March 2017). This was the value in the statement you received, R 16 080 per Krugerrand.
From the above table you will note that as of today (19th April 2017) there are two gains: both the dollar price of gold and the rand weakness. The multiplied effect is very great. There is a minor increase in the price of gold in dollars of $33 or 2.64%. A far more pronounced rand weakness of 43c or 3.33%.
These two gains equate to roughly an extra R 1 000 (or 6.22%) for each Krugerrand you hold in your portfolio.
I trust you will find this summary helpful and encouraging. We may still see further rand strength in the short-term, if we can sort out our fiscal policy and reassure our Bond lenders of the country’s stability.
It is with an optimistic view for a much higher gold price in dollar terms that we continue to look for.
With the bad news about the possible war buildup (North Korea and the US), we saw the gold price make an assault on the $1 300 level. It did not breach it, and has pulled back to consolidate yet again.
This strong gold move in dollar terms is illustrated in the 30 day chart below.
The global political climate remains uncertain and the world’s economy is just as unsure, therefore there is every reason to expect a much higher gold price going forward.
- David Melvill is a financial advisor at the Financial Hub.