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Drones, missiles and surging gold prices

Piggy is fascinated about how the price of gold has surged in the wake of geopolitical uncertainty. Of course, it has now become an investing truism that gold is something an investor buys during uncertain times.  In 2019 for example, the price of gold gained c20% in dollar terms given the uncertainties such as the US and China trade wars.  The year 2020 is even looking better for investors as gold prices have hit highest levels in seven years, gaining to almost USD1,600 per ounce. The recent shock geopolitical event whereby a US drone strike at Baghdad Airport killed Qasem Soleimani, a key Iranian military leader has been the major driver. This stoked fears of a wider military conflict in the Middle East.

Gold as an investment

Why should investors trade or invest in a yellow mineral called “gold”? The answer lies in the characteristics of gold itself such as; (i) it does not rust or corrode; (ii) it can be divided into measurable quantities and can be store; and (iii) it is acceptable as a medium of exchange everywhere and by everyone. As the saying goes, “It is just as good as gold. The yellow mineral is regularly referred to as a so-called safe-haven asset, a place for investors to shelter with their wealth during uncertain times. It historically benefits from flight-to-quality inflows during periods of heightened risk and, by providing positive returns and reducing portfolio losses.

The effect of General Soleimani’s death is an additional upward tick for gold prices. There are several other factors in place that are supportive for gold prices such as a weaker dollar, dovish central bank policies and uncertainty over a more comprehensive deal between the US and China.

How to play the gold theme

Gold is one of the world’s oldest traded commodities. Unlike other assets, it does not produce a dividend. It is definitely not an asset class for everyone. Warren Buffett, America’s most celebrated investor dislikes it. Gold, he once said, “gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.” One of Warren Buffet’s principles is to invest in what you understand;

Zimbabwe does not have any listed ETFs on the Zimbabwe Stock Exchange (ZSE) or Financial Securities Exchange (FINSEC). In South Africa, investors have access to listed gold ETFs such as the ABSA NewGold ETF and Standard Bank Gold ETF. Retail and institutional investors in Zimbabwe cannot invest directly in gold bars but can gain exposure through stocks. RioZim, Falcon Gold and Padenga Holdings are the listed entities that provide an avenue. There are however gold mines that are either owned privately or listed in other markets. Below are some of the names;

  • Metallon Corporation;
  • Blanket Gold Mine is owned by Caledonia Mining Corporation, whose shares are listed on the Toronto Stock Exchange (CAL) and New York Stock Exchange (CMCL);
  • Freda Rebecca Gold Mine (a subsidiary of ASA Resources Plc, which is listed on the London Stock Exchange);
  • Sabi Gold Mine;
  • Duration Gold Mine; and
  • Bilboes Holdings.

In conclusion, Piggy believes that gold miners are set to benefit from the uptick in prices given the growing geopolitical tensions in 2020. Here are some interesting investing basics from Joe Money;

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