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Stock Pick of the Week with Momentum Securities: 29 July – Gold

29 July 2021 Momentum Securities

Momentum’s leading stockbroking division – Momentum Securities – will be bringing you their Stock Pick of the Week, each week.

The stock pick motivation is available as written content and a downloadable video.

This week’s pick: Gold
About: Gold is a chemical element with the symbol Au and atomic number 79, making it one of the higher atomic number elements that occur naturally. In a pure form, it is a bright, slightly reddish yellow, dense, soft, malleable, and ductile metal. Chemically, gold is a transition metal and a group 11 element.

Portfolio Manager for Momentum Securities, Serfaas Badenhorst shares his insights.

Click here to download:
• the audio clip
• the video clip.

“This week’s stock pick is not so much a specific stock, but more about a specific commodity – and that is gold. Gold as any other tradable instrument in the world has its ups and its downs. It’s important to take a step back and evaluate the reason why you would include gold in your investment portfolio and whether this forms part of your long-term financial strategy.

Some of the main reasons as to why you would include gold in your portfolio, is, first of all, it acts as further diversification. Traditionally, gold or precious metals has been seen as a defensive asset class due to its low correlation to risky assets. What this means is – in the event of a market downturn, you’d normally see a rise in the price of precious metals and gold. Because of the non-correlation, you would include it in your portfolio.

Secondly, and probably the biggest one, is gold acts as a hedge against inflation. With a pandemic-hit economy, trillions of dollars in stimulus has been pumped into the economies. That, together with near-zero returns on interest rates, has led to the Fed being more accommodating when it comes to allowing for higher inflation. However, the unintended consequence of this scenario is that this would lead to a weaker US Dollar and secondly to prolonged negative real rates. Both of these are driving factors for the price of precious metals and would normally lead to an increase in the price of gold.

Thirdly is the ease of buying gold in your portfolio. Gold can be bought physically, for instance a Krugerrand or you can buy an Exchange Traded Fund (ETF) that tracks the gold index making it fairly easy to include in your portfolio.

This is seen has some of the main reasons why you would include gold in your portfolio. Take a step back, consider the reasons why you want to do it and see if it forms part of your long-term financial plan.”

Quick Polls

QUESTION

Healthcare brokers have long complained about inflation-plus medical scheme contribution increases; but pandemic may have changed things. What will pandemic-induced changes in hospital utilisation do to medical scheme contribution increase patterns?

ANSWER

Below inflation increase for 2022, then back to inflation-plus
Long-term trend of below inflation increases
Inflation-linked hikes for 2022, then back to inflation-plus
This is a 2-year hiccup, inflation-plus increase trend remains in place
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