On the 14th of January 2008, Mr. A. Demby, Executive Chairman of the South African Gold Coin Exchange, was interviewed by Bruce Whitfield, presenter of "World at Six" - Radio 702
Give it to your Oom
The humble old Kruger rand is still a remarkable investment given how it is tied to the soaring gold price.
Bruce Whitfield:
Well, the gold price today, through $900 an ounce, gets the gold bugs very excited. What gets them even more excited is when Citigroup says "Gold at $1000 an ounce before the end of this year". It certainly lifted the gold shares, star performers in an otherwise negative JSE on the first two weeks of this year. We spoke to Vladimir Nedeljkovic, the man who runs the Absa new gold exchange traded fund last week and demand there has grown dramatically in the past year. This time last year they had assets of R1-billion and now it has got assets of R4-billion. Alan Demby is the executive chairman of the South African Gold Coin Exchange and have you seen a commensurate run in demand for gold coins in the last couple of weeks as the gold price has reached these levels of $900 an ounce Alan?
Alan Demby:
Indeed we have, Bruce, unfortunately our sales haven't increased from one billion to 4.5 billion, but I am pleased to say that there has certainly been an uptick and there are a lot of people out there looking to get into the gold market at the moment.
Bruce Whitfield:
Because we saw the gold production figures last week, they are once again under pressure, do you think the price can be sustained at current levels of $900 an ounce and Citigroup talking about $1000 an ounce? What's your reading of the gold market right now?
Alan Demby:
I think so, I think it is underpinned at the moment by a lot of uncertainty over the sub-prime and I know it has been talked about for a long time and I think it is impacting on the banks worldwide and on the stock markets so I think that people have got a lot more wealth nowadays than 30 years ago when the price went to $850 an ounce and I think that people are looking for a safe haven so I think that that money looking for a safe haven is going to go into gold so I do think that it is underpinned and I think that $1000 an ounce is not that far off and I think we might get there even before the end of this year.
Bruce Whitfield:
Are we getting overexcited about the gold price Alan? If you look at gold at $850 an ounce in 1979 and 1980 it was a considerably bigger deal than gold at $900 an ounce today, in real terms gold is actually probably only at half the value it was then.
Alan Demby:
Yes indeed that is the case, but what else can you do, you know? Where else can you put your money? There aren't too many other hard assets available at the moment so while that is in fact true I suppose gold still is the ultimate store of value. You know over the years gold has been in favour and out of favour and in fact it was only 10 years ago that even the Swiss were saying that they were looking to lighten their load and dispose of some of their gold but possibly now they might rue that idea and wish that they had kept more of their gold holdings.
Bruce Whitfield:
If I had bought a Kruger rand at the last peak in the gold price, I don't know if you have got the figures to hand, but what would I have paid in rand terms for a Kruger rand 30 years ago when gold last peaked?
Alan Demby:
Well I think then gold was as you say $855 an ounce and the exchange rate was roundabout 1.2, so probably Kruger rands, if I'm not mistaken around about R750, and today you are looking at a Kruger rand at R6400 so while it is true that gold in dollar terms have only sort of appreciated marginally the truth is that as a rand hedge, as a currency hedge, Kruger rands have really shown their metal and as you can see over 30 odd years it has gone from R750 to R6400 and so I think it has really proven to be a great store of value and a wonderful investment at that.
Bruce Whitfield:
How does a one-dollar increase in the price of gold per ounce translate when it comes to a full 1 ounce Kruger rand, for example?
Alan Demby:
Well. I suppose one dollar multiplied by the exchange rate at the moment, let's call it R7, so every one dollar increase translates into a R7 increase in the intrinsic value of a coin or gold. so to speak.
Bruce Whitfield:
So the value of a Kruger Rand is directly collated to the value of the gold price then?
Alan Demby:
Yes, it is the dollar price multiplied by the rand dollar exchange rate plus a small premium for supply and demand factors and a small handling fee but by and large, you can probably buy Kruger rands at round about 4 to 5 percent over spot.
Bruce Whitfield:
Alan Demby, thank you very much indeed, the executive chairman of the South African Gold Coin Exchange.
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