High Net Worth: Why gold coins could shine again
By Lauren Foster - 2 Apr 2000 23:30GMT
Last week's rumours surrounding the French government's move to unload some of its gold reserves on the international market added to gold's long-running woes. Just the sort of thing to bring a frown to the face of goldbugs and Paul Kruger, cast in relief on the eponymous South African Krugerrand 2000, at the centre of the latest effort to revive investor interest in the precious metal.
Some optimists thought the week's slump boded well for gold investors. Even market watchers bearish on gold such as Barclay Tittmann, portfolio manager at Eaton Vance Management, think the low prices are not sustainable, even though a recovery may still be months away.
Indeed, the past decade of strong economic growth, low inflation and general monetary stability has prompted a broad investor shift away from tangible assets - such as gold bullion coins and bars towards financial assets.
But, in the wake of stock market volatility and fears of inflation, investors may be considering more defensive plays, such as the yellow metal.
"Physical gold, that is, possession of gold coins or bars, still gives the best insurance against systemic financial market collapse," said John Reade, precious metals analyst at Warburg Dillon Read. "Gold shares do not give the same security; holding a piece of paper would be of little use if the global financial system were to collapse. Historically, in times of financial turmoil, physical possession of gold has often been the only accepted means of payment."
Richard Scott-Ram, chief portfolio strategist at the World Gold Council, said gold was the most negatively related asset class to stocks. "Gold is so low compared to how high stocks are that there is a huge case to be made that you are buying portfolio insurance by buying gold."
There may well be an argument for gold being a value investment at current prices. Gold enthusiasts also point to the fact that investors can display their gold in a showcase, impossible to do with an online brokerage portfolio.
Krugerrands, the most widely held gold bullion coins, come in four sizes containing 1oz, 1/2oz,1/4oz or 1/10oz of pure gold.
They carry a small premium over the value of their gold content, unlike collector coins where the value usually depends on rarity and condition.
This means the lowest price Krugerrands would trade at would be the underlying gold price. Yet while they offer investors liquidity as the most actively traded gold coin, there is scant demand for it in the US collector's market, where the American Eagle coin is more highly prized.
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