A Beginner Guide to Gold Investment in South Africa

01 JULY 2024

Investing in gold is a popular way to protect and grow your wealth, and has been a trusted route for many over the decades. Gold is known for its stability and long-term value, making it a favourite investment choice, especially in uncertain economic times. This guide will help you understand why people invest in gold and how to in South Africa.Stacked gold bars symbolising gold investment

Why Invest in Gold?

  1. Protection Against Inflation: Gold is seen as a good way to protect your money from losing value when prices rise. Unlike paper money, gold often keeps its value or even increases it when the cost of living goes up.
  2. Stable Investment: When the economy is unstable, gold is a safe investment. People tend to buy gold when the stock market is doing poorly, which helps protect their money.
  3. Diversification: Adding gold to your investments helps spread out your risk. This means that if one type of investment (like stocks) goes down, the value of your gold investment might go up, balancing things out.
  4. Easy to Sell: Gold is easy to buy and sell, which means you can quickly convert it into cash when you need to.

To simplify, if you have R500 in cash and you purchase R500 worth of gold stock, when inflation devalues your cash, it may not devalue the value of your gold. In this case, you could later sell your gold stock for more than R500, theoretically recovering the full value of the cash you spent, not merely the amount that you spent.

How to Invest in Gold

Physical Gold

Investing in physical gold means buying real gold items such as coins, bars, or jewellery. Here are the main ways to do this:

  • Gold Coins: Coins like the South African Krugerrand are popular. They are easy to buy, sell, and store.
  • Gold Bars: Gold bars come in different sizes and weights. Serious investors often buy larger bars.
  • Jewellery: Gold jewellery can be an investment, although it's not the most efficient way because of the additional costs that come with creating the product and its fragility.

Gold ETFs (Exchange-Traded Funds)

Gold ETFs allow you to invest in gold without buying physical gold. These funds buy gold bullion and track the price of gold. When you buy shares of a gold ETF, you're investing in the gold the fund owns. ETFs are easy to trade on the stock exchange. One downside of this method is any operational weaknesses the fund manager may have and potential service charges.

Gold Mining Stocks

Another way to invest in gold is to buy shares in gold mining companies. When you invest in these companies, you're investing in their ability to find and produce gold. The value of these stocks can go up if the price of gold rises or if the company performs well. Major South African gold mining companies include AngloGold Ashanti and Harmony Gold.

Gold Mutual Funds

Gold mutual funds pool money from many investors to buy gold-related assets, such as stocks of gold mining companies and physical gold. These funds offer a diversified way to invest in gold and are managed by professional fund managers.

Gold Savings Accounts

Some South African banks offer gold savings accounts. These accounts let you invest in gold without having to buy and store physical gold. You can buy small amounts of gold, and the bank stores it for you.Golden eggs in a bird nest representing secure investment

Things to Consider

  1. Price Changes: The price of gold can go up and down based on market conditions. While gold is generally stable, it can still be affected by economic changes.
  2. Storage and Security: Physical gold needs to be stored securely, which can cost money. Consider using a safe deposit box or a professional storage service, especially if you are investing a significant amount into this precious metal.
  3. Investment Timing: Buying gold at the right time is important. If you buy when prices are high, you might not get the best returns. Research and talk to a financial advisor to understand the best times to invest.
  4. No Regular Income: Unlike stocks or bonds, gold doesn't pay interest or dividends. The return on your investment comes from selling the gold at a higher price than you paid for it.

Investing in gold can be a good way to protect your money, help diversify your investments, and possibly benefit from economic downturns. Whether you choose physical gold, ETFs, mining stocks, mutual funds, or gold savings accounts, it's important to understand the benefits and risks involved in each form of investment. Do your research and consider consulting with a financial advisor to make informed investment decisions.

If you’re looking for a more immediate way to raise cash then consider a personal loan from RCS, which offers quick cash loans from R2 000 up to R250 000 with an interest rate potentially as low as 15%.