eBusiness Weekly
Michael Tome
Business Writer
OLD Mutual has added its supportive voice to the recent introduction of gold coins on the local market saying they have potential to ease pressure on the United States dollar demand and could help in mopping up excess liquidity in the economy.
The country has lately been witnessing a spike in US dollar demand as individuals and corporates sought to hedge their Zimbabwe dollar component against the run-away inflation which raced from 72, 7 percent in March 2022 to 257 percent in July 2022.
Old Mutual said the gold coins could be an effective instrument in curbing the runaway inflation and currency depreciation on savings as they offer a proven value preservation avenue.
The international financial services group was however quick to object that the unveiling of gold coins on July 25 was impulsive as the process demanded extensive public training on the subject.
According to Old Mutual, the introduction of gold coins is coming at a time when market confidence is inherently weak, thus calling for transparency in adopting a global spot pricing, a position it argued would encourage subscription of gold coins at the same time deterring speculative buying.
Like other economic commentators that have implored the government not to leave loose ends that prop up arbitrage opportunities, Old Mutual advised on the need for transparency.
Further alluding that there were still outstanding variables that posed downside risks mostly on trading mechanics, transparency, and market conduct.
“The gold coins seem well-meaning and their attractiveness as a store of value investment instrument seems sound in the context of inherent monetary policy concerns. This notwithstanding, and as with any other policy initiative, implementation modalities are critical.
Old Mutual added that, “Prescribed asset status and ability to purchase them in local currency presents further support for gold coins beyond their intrinsic value.”
Gold coins were introduced into the market towards the end of July as part of measures to provide investors and the general public with alternative means to preserve value and hedge against the negative impact of resurgent inflation in the economy.
The financial services group noted that although gold coins look attractive at face value there were risks associated and needed to be appreciated particularly to establish the authenticity of the coins citing that coin fraud can be costly and result in losses.
As mitigating measures, Old Mutual supported the decision by authorities to issue coins with serial numbers along with bearer certificates.
“Coin fraud can be costly and difficult to mitigate. Coin fraud is rampant, and most tests require a physical inspection of the underlying coins. Some tests tend to scar or damage the coins. Consequently, scarred coins risk a price discount on the secondary market.”
The financial services group said the Integrity of the gold coins encompassing content verification and reconciliation of certificates with coins was crucial in supporting market confidence, from an arguably low base.
Other investment institutions have also given the coins their thumbs up.
Zimnat Asset Management said the coins presented a “relatively safe haven” for investors as it has been traditionally a good hedge during inflationary periods. As such, the coins were a viable investment for cautious investors with a low tolerance to risk.
“This instrument suits investors that are looking to preserve value since gold has traditionally been a good store of value,” said Zimnat.
“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.”
Given the country’s currency instability, buying gold coins using local currency, where possible, is always the best option, even at a reasonable premium to market, said Zimnat.
“This is because in the long run, investors benefit from the accumulation of a real asset, hence the preservation of value,” said Zimnat Asset.
Stockbroking firm Morgan and Co said the inflationary pressures and currency instability “cements” the investment case in gold coins. “Gold is a safe haven asset,” it said.
“Global investors typically look at gold as a haven during times of political and economic uncertainty.
“During such times, investors who held gold were able to successfully protect their wealth.”
