Gold hits a high

"The ongoing quantitative easing of money supply is the epitome of profligacy - a phenomenon highlighted by the idea floated in The Financial Times by World Bank President Robert Zoellick that leading economies should consider readopting a modified global gold standard to guide currency movements.

"Printing money is easy; mining gold is darn difficult, as certain new mining operators have painfully discovered. In effect, as history has frequently demonstrated, rare gold is more valuable than easy cash."

In this context, he highlighted the German, Zimbabwean, Argentinean and Brazilian hyper-inflation experience. "Easy money wins the booby prize, not the gold medallion. There is no gold at the end of that rainbow. Easing of money supply is, obviously, designed to inject life into the stuttering US economy. But such strategies threaten to get out of hand if they are not very carefully controlled, as Robert Mugabe will testify."

Krugerrands still top investment

Noting that there were various avenues for investors to benefit from the gold boom, as he maintained that the gold bull market is still young, Demby recommended Krugerrands (KR) as the most convenient investment avenue, for reasons that included:

• Their ease of storage;
  
• Their international recognition and worldwide marketability;
  
• Their homogeneity as a standard gold one-ounce store of value;
  
• No VAT is payable on the purchase of Krugerrands.

Acknowledging that Exchange Traded Funds (ETFs) specialising in gold are popular, Demby suggested that they were most suited to the institutional market, while Krugerrands were better suited to the retail market.

Regard gold shares with caution

"With KRs you know what you are holding and you know that you are not geared. EFTs have morphed into funds of funds, which invest in assets other than pure gold and which often leverage their assets to enhance their returns.

"Yes, if they are leveraged if they gain value faster than the gold price. But the other side of the coin, so to speak, is that their leverage could work against them, with their value dropping dramatically on any gold price weakness, which renders them high-risk investments."

He cautioned against gold shares on grounds of nationalisation threats and underground mining risks. He said that SAGCE's 25 retail Scoin outlets, both locally and in the UK, had been experiencing unprecedented demand for Krugerrands. "That's one of the reasons we are about to open another London office," he concludes.