Few hedge funds are predicated on the "heads you win, tails you win" phenomenon. This is why, as you weigh up how best to hedge your capital, you should place gold coins under your investment microscope.
The statistics speak for themselves, with the price of a Krugerrand having soared from R27 to
R5 000 over the past 40 years.
On this performance, coins clearly warrant consideration as a respectable asset class.
Indeed, Krugerrands, along with old coins enjoying a measure of rarity value, have every right to be taken seriously.
As with hedge funds, South African investors have long viewed the coin market with scepticism, an extraordinary perception given that:
- The Krugerrand, of which 55 million have been minted, is the most successful gold coin in history;
- Gold is the world's most liquid market, with R92 billion worth of the metal traded daily;
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Gold has proved itself, time and again, to be the ideal hedge against political, economic and financial uncertainty;Gold coins give you total control; the only person you have to share your profits with, conceptually, is Paul Kruger;
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Gold coins can be traded on a worldwide market worth $30 billion (R218 billion); and
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Coins are maintenance free; they don't "fray around the hedges", even when the going gets tough.
By viewing coins sceptically, tens of thousands of South African investors are passing up this opportunity, even though few could be unaware of the headlong gains accruing to owners of Krugerrands in the past couple of years.
Possibly the most resounding endorsement for this investment class is that it is populated almost exclusively by successful self-employed individuals, people I term "the millionaires next door", who deliberately avoid extravagance yet have sufficient disposable income to count coins among their portfolios.
It is to this asset class that the smart money gravitates: smart investors who preserve and grow their capital systematically and professionally.
Right now I can say from first-hand observation that the smart-money investors are constructing their portfolios in such a way that the coin asset class comprises 10 to 20 percent of the total by value.
Within that class, their general rule of thumb is that 70 percent should consist of Krugerrands, with the balance being collectible coins.
Why is the smart money opting for a 70-30 split between Krugerrands and collectible coins? The short answer is liquidity, combined with the gold market cycle.
Self evidently, there is bound to be a preference for coins that are instantaneously convertible into cash anywhere in the world. Craftily selected rare coins are more stable, but should only be sold at the right price, at the right time.
What tends to happen is that much buying attention is focused on Krugerrands when the gold price is low, and that attention is refocused on selling Krugerrands when the gold price is high. At that stage of the gold cycle, as well as during long periods of neglect, the smart money turns its attention to collectibles.
In sharp contrast, the sheep money piles into Krugerrands when gold is at or near a peak, invariably piling out at close to the bottom. It goes without saying that this is the common approach to most markets.
Coins are the ultimate liquid hedge; the hedge fund where the buck stops. The Krugerrand is effectively a hedge fund that bucks the trend; the number one liquid hedge.
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