“Over the past two years, for example, the money supply in the United States has increased by more than 38% to around $6 trillion, an increase that typically took decades to achieve.
So a combination of unsecured money supply from the US, rising global inflation and fears that Washington is increasingly using the US dollar to sanction other countries is pushing investors into other assets. investable.
Although there is a shift towards other global currencies, there is also a significant shift towards gold.
The recent announcement by the Reserve Bank of Zimbabwe (RBZ) that it will soon introduce gold coins as another investment option that investors can use to hedge their investments has been causing a stir.
Many are curious about what gold coins are and the framework in which investors can buy them.
The decision was first announced as part of the central bank’s Monetary Policy Committee (MPC) resolutions on June 24, 2022.
Little information was shared by the central bank except that the gold coins, which will be minted by Fidelity Gold Refineries, would be introduced “as an instrument that will allow investors to store value”.
These announcements are normally followed by guidelines, regulations, and terms on how the coins are going to be introduced, including price and target market.
Regulations are in preparation.
However, the only information available is contained in Exchange Control Circular No. 6 of 2022 issued to licensed brokers of various financial institutions, especially banks.
The circular, issued on June 28, 2022, said gold coins would serve “as an instrument for investors to store value.”
“Operational modalities for the processing of gold coins will be made available in due course,” reads part of the circular.
RBZ Governor Dr John Mangudya told the Sunday Mail Business last week that the apex bank would publish relevant regulations.
So, officially, that’s all that was provided by the authorities.
The biggest advantage, however, is that the coins are introduced “as a store of value”.
The issue of value preservation is topical not only in Zimbabwe, but around the world.
Inflation is ravaging the world.
The erosion of value has therefore spared no one, except probably those who have invested in gold.
Gold started the year at US$1,828 and reached a high of US$2,052 per ounce (28.3 grams).
On Friday morning, it was trading at US$1,791.
It is believed that the gold coins will only be sold in US dollars.
The central bank is currently buying gold from miners in US dollars while the Zimbabwean dollar is not yet relatively stable.
Why gold and not the US dollar?
There is a lot of pressure on the local unit as the market uses the US dollar – a reserve currency – as a store of value.
But questions have been raised about why investors would prefer gold coins over the US dollar, which appears to serve the same purpose.
In mid-June this year, the dollar index, which tracks the performance of the greenback against six other major currencies, hit a new two-decade high.
With inflation and growth concerns plaguing economies around the world, the US dollar has benefited from safe-haven flows in recent months.
In this context, the US dollar is a better store of value.
But that’s a short-term perspective.
The world order is changing and the dominance and value of the US dollar is under serious threat.
According to IMF officials Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell in an article titled “Dollar Dominance and the Rise of Non-traditional Reserve Currencies”, central banks are not holding the greenback in their reserves as they once did. . .
The dollar’s share of global foreign exchange reserves fell below 59% in the last quarter of 2021, extending a two-decade decline, according to IMF data on the currency composition of official foreign exchange reserves.
The incessant money printing by the US Federal Reserve is also believed to be the cause of global inflation as well.
Over the past two years, for example, the money supply in the United States has increased by more than 38% to around $6 trillion, an increase that typically took decades to achieve.
So a combination of unsecured money supply from the US, rising global inflation and fears that Washington is increasingly using the US dollar to sanction other countries is pushing investors into other assets. investable.
Although there is a shift towards other global currencies, there is also a significant shift towards gold.
Central banks around the world are increasing the gold they hold in foreign exchange reserves, taking the total to a 31-year high in 2021, according to a report from Nikkei Asia.
Central banks have built up their gold reserves by more than 4,500 tonnes over the past decade, according to the World Gold Council, the international gold industry research body.
“The value of the dollar against gold has fallen sharply over the past decade as large-scale monetary easing has continued to boost the supply of the US currency.
“Although the U.S. Federal Reserve begins to tighten its grip on credit, other central banks continue their transition to gold, reflecting global concerns about the dollar-based monetary regime,” the article reads in part. Nikkei Asia.
The same article adds:
“Since US President Richard Nixon announced in 1971 the decision to end the convertibility of the dollar into gold, the value of the currency has fallen to about one-fiftieth of its previous level as the US supply of dollars, untied to gold, has been multiplied by 30. the last 50 years.”
This provides some justification for the RBZ’s idea that it is possible to buy gold using US dollars.
However, gold and gold coins are not one and the same.
As other countries increase their gold reserves, the central bank plans to sell gold coins.
Since the coins are going to be sold through the banks, the assumption is that they are going to be sold to a wider market.
This is the global standard, as gold coins are minted for investors to buy in small or large quantities.
Has this already been done?
Many countries have issued gold coins.
According to the Gold Bars Worldwide website, countries with gold coins include South Africa with its gold Krugerrand coins, Australia has the Australian Kangaroo, the United States has the American Eagle, Canada has the maple leaf, Austria has the Vienna Philharmonic Orchestra.
Some countries issue gram-denominated gold coins that contain irregular amounts of fine gold, while others issue gram-denominated gold coins that contain regular amounts.
In India, gold is one of the most popular metals in terms of investing and selling.
Apart from the local jeweler, one can also buy gold coins from e-commerce banks and MMTC (a public sector unit licensed by the government for the sale of gold and silver).
In this country, gold is considered a form of savings and good returns on the money invested in it.
Gold coins are prepared in different denominations ranging from 0.5 grams to 100 grams.
The purity of gold coins is rated based on carat and fineness.
Fineness can be defined as the weight of gold relative to the total weight of a piece of gold, including impurities.
Market watchers say some investors prefer to buy gold coins because they are a tangible asset, have no counterparty risk, can be private and confidential, are liquid and portable assets, they have no maintenance and carrying costs and can protect their portfolio in times of crisis.
The value of gold coins always increases with inflation and contributes to purchasing power.
Globally, gold coins are also sold at a premium.
The premium of a gold coin is simply the difference between the price of a gold coin and the value of the metal it contains.
The premium comes from factors such as design, minting costs as well as supply and demand.
What analysts think
Economic analyst Mr. Farai Mutambanengwe thinks that people will want to hold gold coins as much as they want to hold US dollars.
“In principle, gold coins are a superior investment asset to USD, and most certainly to ZWL.
“Any investment manager worth their salt will gladly and willingly invest in these funds, provided the proper framework is created to create and manage them.
“Gold coins should be introduced as a way to incentivize holding and investing in the ZWL, as well as manage ZWL liquidity, rather than a way to mop up the dollar,” Mutambanengwe added.
Walter Mandeya, an analyst at Trigrams Investment, said gold coins should be viewed as “an alternative investment to USD, stocks and real estate.” – Sunday Mail
Comments are closed.