Mailbox: Changing the gold sceptic’s minds – as insurance

From BizNews community member David Melvill

Hi Alec,

Well done on a very good presentation today!

It is never easy reporting back when a selection of investments have been hit badly. I felt that you remained upbeat despite hurting. You did not let the panic in the market get to you. I have learnt a lot from you, followed your investment selections (and made money) thanks to you.

I try never to miss your presentations because they are so insightful.

Q: Hi Stu, I thoroughly enjoy and appreciate Alec’s wisdom and good insight. I do admire his approach to how Mr Market responds and his resilience to not fall into the traps of investing. I do think the world is a difficult place to be invested in right now.

Just wondering if it will be time to take out some ‘insurance’?

Gold and silver are uncorrelated investments and in times like these, will help protect the portfolio. Will he consider putting some ‘insurance’ in place? Thanks.

Thank you for the answer to my question Alec. You always try to be gracious in your responses. This must be hard when one does not like what you are hearing. You have an amazing ability to be positive and not contrascending.

I maybe did not spell out my question carefully enough, please forgive me. I was not referring to commodity shares, but physical gold and silver. It is not something you need to buy because it is ‘fashionable’. While this may be the case right now, it is something that I buy and hold until judgement day. I only sell when I need to raise some cash.

Because gold is uncorrelated, it balances a portfolio. When shares, property and bonds are taking strain, gold will do the opposite and do well. That is the nature of the investment. It therefore does help to lower one’s risk and it offers protection in uncertain times. The key is to get the balance right. Typically anywhere between 5–10% is a long-term allocation.

I know the ‘greater fool theory’, is used in ordinary times, but Mr Market will be investing in gold as a safe haven and ultimate store of value right now. To ignore or neglect it could be a costly exercise.

I do hope you will consider putting some insurance in place, even if small, it will be prudent.

Allan Gray, arguably one of SA’s finest investment managers, was persuaded that gold should be part of his portfolio just prior to his death. He had largely avoided gold for most of his life prior to this. I am attaching an article I wrote some time ago about Allan’s change of mind.

A gold sceptic becomes a firm believer

By David Melvill* 

It was 2008, just after the time of the Great Financial Crisis that my friend, a member of the investment committee, asked the reasonable question, “Could now be the time for investing in gold?” He received a scathing attack, as if to say, “Are you wanting to play at the casino?” By this the distinguished person responding meant regarding gold, “You pays your monies and you takes your chances.”

Some ten years later, in November 2018. My friend had dinner with this distinguished person. From this meeting he learnt that the sceptic of gold had been doing some extensive research and discovered that China was not only the biggest producer of gold but had also become a major buyer of gold.

His words were said with a very high conviction: “I am very bullish on gold. I have largely been anti-gold, gold now looks very attractive to me.”

The person expressing these profound words was none other than one of South Africa’s most celebrated and successful investors, Allan Gray. He was the founder of the privately-owned Allan Gray (Pty) Limited, the non-profit Allan Gray Orbis Foundation, and the Allan & Gill Gray Charitable Trust.

Sadly, a year later (Nov 2019) after making this profound statement and implementing it, he died at the age of 81. In the meantime his foretelling utterance has proved to be 100% correct.

In just 23 months, in dollar terms, gold has rallied from $1 200 to $1 912. This is a return of 60%.

In rand terms, gold has soared from R 18 000 to R 32 000, it has offered an excellent return of 78%.

Allan Gray (81) the founder of the largest unlisted asset manager in South Africa.

My counsel is to heed this wise man’s words and make sure you are invested in gold – the purest form of money. Krugerrands are best way for South Africans investing in gold and gold bars for investing offshore. Those that understand the risk and the gearing effect of the gold miners, will do well in investing in gold shares or the Old Mutual Gold Fund.

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