Zimnat backs Gold Coins as diversification instrument

Asset management company Zimnat through its published opinion, has given the yet to be released Gold Coins its backing as a good investment option especially for institutional investors.

Zimnat said; “In our view, investing in the gold coins presents a good opportunity for institutional investors to increase their regulatory compliance by investing in an asset with Prescribed Asset Status.

“In addition, it allows investors to apply ZWL balances to an instrument that allows for inflation hedging and rate linked returns, that are generally uncorrelated to the performance of equity markets.”

According to Zimnat, 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.

Globally, gold 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 will be priced at a premium to the prevailing price of gold on the international markets, to take the minting costs into consideration. The Reserve Bank of Zimbabwe (RBZ) said a maximum surcharge of 5 percent the prevailing international gold price will be applied.

Zimnat said in light of this it anticipates that scarcity of these coins in the market after the initial launch will result in the coins attracting a premium on sale.

The governor of the Central bank, Dr John Mangudya, said the gold coins would act as a store of value and were expected to reduce the demand for US dollars.

“The gold coins will be available for sale to the public in both local currency and US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost production,” Dr Mangudya said in a statement.

The gold coins, named Mosi-oa-Tunya, after Victoria Falls, can be converted into cash and be traded locally and internationally.

According to the RBZ the coins will each contain one troy ounce of gold and will be sold by Fidelity Gold Refinery, Aurex and local banks from July 25, 2022.

“Gold generally provides returns that are not correlated to equity markets. It must however be noted that the price of gold tends to fluctuate, largely driven by global macroeconomic developments.

“For example, in 2021, volatility in the gold price was based on numerous factors: with corona virus relief packages in the United States and periods of economic recovery driving decreases while rising inflation and geopolitical tensions propelled the rises,” Zimnat added.

Overall, the gold price lost 3 percent year on year in 2021, however, the outlook for gold for the rest of 2022 remains encouraging, with rising recession expectations expected to hold prices around current levels.

Although it is thought that slower than expected recovery in China’s economic activity may weigh down the gold price. In addition, the recent decline in price, points to a correction of the initially perceived effects of the prevailing geopolitical tensions as well as the effect of the recent rate hikes by the Federal Reserve in the US.

Despite the short-term volatility, gold has traditionally been less volatile than other types of investments over the long-term.

However, the asset management firm said the potential downside risk emanates from poor performance of gold on the international markets. Furthermore, they advise investors to be mindful of the tax implications of the instrument.-ebusinessweekly