Smart way to buy gold

But every now and then I like to take out a bit of “insurance” on my investments.

The world is not a happy place at the moment; there is a perfect storm brewing for gold to go higher.

There is almost always warning signs that it’s time to buy some gold protection.

It’s not called the “safe haven” commodity for nothing.

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Historically, investing in gold has proven to be a bad choice, but every now and then the world throws out a few warning signs that things are not okay out there.

A short to medium term gold trade is a smart way of buying a little protection in case markets go bad.

Warning signs:

• Weakening Dollar

• Increased market volatility

• Rising gold price

• Emerging market downgrades. (Guess who’s next!)

• Acts of terror

All of the above-mentioned signs are playing out right now.

That’s how I know the time to buy is now.

So how would I get gold exposure?

Physical gold like the Kruger Rand is one way, but there are more efficient ways to buy gold.

Kruger Rands are actually expensive and risky to own.

Not only do you need a safe, or keep them in vault, but you have to insure them too!

No thanks, too much trouble.

The market provides alternatives to buying gold-related securities.

Investors are able to trade in gold futures, gold mining stocks as well as exchange traded funds that track the gold price.

In a South African context, trading in gold stocks poses too many risks for my liking.

Just the other day AMCU threatened a prolonged wage strike at Sibanye Gold.

Strikes are far too common in our mining industry for my liking and especially for my money.

Eskom has also been blamed for loss of production due to power disruptions and even when they do provide power, their continuous price increases put pressure on the profit margins of our mines.

It makes no sense for me to invest in a mine, so I stay away.

Trading the physical commodity is not a bad option, however, the capital outlay for the investment can be substantial, as these contracts are priced in dollars.

I have found a simple low-cost solution that works for me.

It’s called the “Newgold” exchange traded fund (ETF).

The benefits of trading this ETF is twofold.

Not only does it track the dollar gold price, but as the rand weakens against the dollar, the price of the ET goes up.

It’s a double whammy!

Simply put, a weak Rand and a rising gold price drive the price up.

The plus side here is that even if the gold price doesn’t go up and stays stable but the Rand continues to weaken significantly,

Newgold’s price could still go up because of the exchange rate.

The market maker for this ETF is Absa and the instrument itself is traded just like any other share.

This makes it easy to buy and easy to sell.

I like to keep my trading strategies simple and logical and, with the current global and local risks around, this ETF trade makes perfect sense.

As usual I am more than happy to share my thoughts with you, so if you need to know more please email to benonicitytimes@caxton.co.za.

Benoni resident Roberto Pietropaolo, or Robby P, as he is known in the financial markets, is committed to educate you on financial wellness, investing and general money matters.

He works for Vunani Private Clients, as a trader, investor, mentor and tutor. He specialises in trading the short term derivatives market and longer term equity or share market.