As good as gold: how consumers can cover currency and interest rate risks

Throughout the ages the shimmering beauty of pure gold has captivated humanity and the desire to own exquisite objects crafted from this precious metal. PICTURE: ROY WIGLEY

Throughout the ages the shimmering beauty of pure gold has captivated humanity and the desire to own exquisite objects crafted from this precious metal. PICTURE: ROY WIGLEY

Published Mar 26, 2023


India has been attempting to internationalise the rupee for a long time. Nowadays, currencies like the US dollar, Euro, Japanese yen, British pound, and to a lesser extent, the Chinese yuan can claim to be a global reserve currency. But, recent reports suggest that India has made tremendous progress towards giving the rupee this status.

It is the beginning of a new era and also the end of another era, namely the US dollar dominance in world trade, starting with oil.

In a previous article we highlighted Russian President Vladimir Putin said that the whole global economy and trade had suffered a major blow, as did the trust in the US dollar as the main reserve currency of the world. “The illegitimate freezing of some of the currency reserves of the Bank of Russia marks the end of the reliability of so-called first-class assets,” he added. “In fact, the US and EU have defaulted on their obligations to Russia. Now everybody knows that financial reserves can simply be stolen.”

Harsh words from the invaders of Ukraine and other developments are now adding fuel to the fire, and the momentum is gaining speed.

The following graph illustrates how the US has dominated world trade by imposing the dollar as the world reserve currency. This graph indicates that US dollars in circulation in the world exceeds $2,297,461 billion, which is 80% of all global forex dealings. The US debt to GDP ratio is also well beyond any stable country in the world.

In 1972, The US made a pact with Saudi Arabia. They would “protect the Saudis from external military attacks, and in return, the Saudis will accept US dollars for their oil sales. This arrangement will now change as Saudi Arabia wishes to join BRICS with a new currency based on real assets such as gold, oil, sugar and other relevant commodities.

This means the US will no longer be able to create increased dollars and debt to sustain the dollar's strength. There are currently more than R2 trillion dollars circulating in the world. The demand for dollars will drop off a cliff.

The world is not fair, and financial institutions are not to be trusted at all costs. Their products must be properly investigated, and it is important to stay alert and ensure the value offer works for the individual and ensure that the price is worthy of the risk.

An example of the unfairness of financial systems is the recent rise in interest rates in South Africa. Consumers that have existing bonds and car debt and credit cards to cover and are paying the banks more interest for nothing extra received. The SA Reserve Bank misjudged the state of the economy by a country mile, and nobody called the financial system to order. A redistribution of wealth from individuals to the banks took place, never to be reversed.

Individuals and investors alike that invest in Krugerrands to side-step the risk of currency uncertainty and interest rate fluctuations have, over time, not been disappointed. The prices may have had a good run of late, but somehow, I doubt that it’s over.

For collectors, no other metal can match the quality and lustre of coins struck in the finest gold. South Africa ranks among the very few countries where gold coins have been minted as negotiable currency and remain available for general purchase, allowing collectors to own a share in the country's production of fine gold.

The first Krugerrand, consisting of 1 troy ounce of fine gold, was struck by The South African Mint on 3 May 1967. The design of the Kruger rand was based on the ZAR or Kruger Ponde, historical coins of South Africa.

The name of the was derived from ZAR President Paul Kruger and the Rand, the monetary unit of South Africa. The Rand is associated with the area called the Witwatersrand “the ridge of white water” an important gold-producing area in South Africa.

The Krugerrand remains the world’s most popular and actively traded gold bullion coin, with more than fifty-eight million ounces having been minted. The table below illustrates Krugerrand mintages.

The Krugerrand was selected at 22 carats or 91.67% gold, with the balance being copper, the old traditional alloy of gold coins. The value of the bullion coin, is linked to the daily gold price and, therefore, constantly fluctuates. In 1980 the fractional denominations (1/2oz, 1/4oz and 1/10oz) were added to the 1oz Krugerrand in order to assist the smaller buyer to obtain gold at an affordable price.

The Krugerrand is unique in that it is a legal tender or a valid trading coin without a face value. The face value is 1oz of fine gold (or fractions thereof) and is traded as such.

Kruger is an independent analyst.