Gold coins perfect for investors – Zimnat
Nevanji Munyaradzi Chiondegwa
The Mosi Oa Tunya Gold Coins were officially launched on the market this week with diverse opinions on their success among economic players and skepticism from political players.
The coins which can be bought using the Zimbabwean Dollar (ZWL), US Dollar, SA Rand, Australian Dollar, Botswana Pula, British Pound and the Euro is 22 carats or one ounce gold. It opened at a price of US$1,823.83.
According to the Reserve Bank, the economic rationale for the introduction of the gold coin instrument is to facilitate the preservation of value.
Zimnat, a diversified capital finance company wrote an opinion on the coins saying the loss of value in the local currency and the exchange rate instability is a result of perennial economic policy missteps that have resulted in a high deficit in confidence amongst economic participants.
This has led to an increased demand for US Dollars as a store of value and as the preferred medium of exchange. Since the return of the multicurrency regime, we have seen an extensive growth in foreign currency balances in the banking system, from USD340,000 at the end 2018 to USD1.9 billion as at the end of April 2022,
As of April 2022, foreign currency accounts make up about 45% of total deposits in the economy, a significant jump from around 4% registered at the start of 2019. Given the rapid growth in export proceeds (+67.6% year-on-year in 2021) and diaspora remittances (+42.7% year-on-year in 2021), Zimnat says that “….the economy does not have a foreign currency generation challenge, but a foreign currency allocation problem. Therefore, current policies around how foreign currency is allocated have failed and have once again triggered a run on the local currency.”
They further say, “This lack of confidence in the local currency has intensified the forward rate pricing of goods and services as well as the benchmarking of products in the US Dollar, pushing the economy once again into hyperinflation.”
The prevailing situation has led to increased appetite for the US Dollar in domestic commercial transactions, with most taking place outside the banking system, because of the high cost of transacting and suboptimal exchange rate prevailing in the formal market.
The growing disparity between the official exchange rate and the alternative market rate assumes an over-valued Zimbabwe dollar on the official market.
On investing in the gold coin, Zimnat are of the opinion that apart from their observed flaw in the pricing of the local currency, and for investors looking for long term value preservation and is relatively risk free.
They say, “This instrument suits investors that are looking to preserve value since gold has traditionally been a good store of value. For investors seeking income opportunities, since the instrument can be used as collateral, there may be opportunities to work with asset managers with structuring capabilities, in order to sweat the asset.”
The gold coin is a relatively safe haven and gold has traditionally been a good hedge during inflationary periods. Therefore, this is a good investment for the cautious investor with a rather low tolerance to risk. The instrument can also be held for the long-term, given its durability. In addition, for short-term liquidity requirements, the instrument has liquid asset status as well as a buy-back arrangement which compels the RBZ to purchase the instrument at the instance of the holder.
Zimnat said, “Investing in the instrument presents a diversification opportunity into commodity markets. In addition, given its Prescribed Asset Status, the instrument allows institutional investors to increase compliance with regulatory requirements.”
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