At the end of last month, the RBZ introduced the Mosi Oa Tunya gold coin which is currently selling for about US$1 800. The coin has been so successful to the extent that the RBZ is considering introducing other coins including smaller value ones that ordinary people can actually use in their daily lives. The main aim of introducing the gold coins however was that they could become an alternative safe haven for Zimbabweans. But is are gold coins better than USD when it comes to being a safe haven?
Before we get into the advantages and disadvantages of gold and USD as safe havens it is important that we first define what a safe haven is. A safe haven currency or asset is an item which is supposed to retain its value or even increase in value even when it feels like the end of the world. We have seen the world end economically in Zimbabwe so many times so most people are familiar with what I am talking about. A safe haven asset or currency would allow your useless RTGS/ZWL earnings to be safeguarded against inflation and rate increases.
Traditionally financially savvy Zimbabweans have used the following strategies in order to safeguard the value of their ZWL/RTGS earnings/savings:
- Invest in the stock market. Share values are based mostly actually physical assets whose value can normally weather inflation
- Buy real estate properties like stands and actual houses. Properties are not immune to economic woes but you can expect to be better protected against inflation. However, you need vast amounts of money to get started and only the very rich can afford to do this.
- Invest in mutual and pension funds. Unfortunately, pension companies often turn around and cheat their contributors while pocketing the profits of these investments themselves.
- Buy USD cash and stuff it into your pillow. This is the most accessible strategy that most of us can afford. Sure the USD is not perfect and our demand for it, while it is in short supply, has driven up the rates but if you have USD you don’t have to worry about waking up your pauper because of some overzealous statutory instrument.
- Investing in gold, similar metals,jewellery and other assets. The problem is that in Zimbabwe this is sort of hard to do. Going around with bags of gold is something frowned upon by the authorities besides there is only one gold buyer. The government, which can always set a very low price. Gold coins are a legal way for companies and people to legally hold gold.
So which is better gold or USD?
If the RBZ is to be believed then you should go for gold:
The prices of gold are always changing. That is why I said you are taking a risk (in buying gold coins).
We have reduced the number of risks, but the price risk that is on the gold and the volatility of the gold price is lower compared to other commodities.
There is a school of thought that says when there is tension in the world, the only safe haven is gold.
So, a lot of people are actually going for gold because of what’s happening in the geo-politic.
A lot of people are not comfortable holding currencies because they are more volatile than gold.
They see gold as a safe haven because it has more stability than currency, which is affected by politics.RBZ governor recently speaking on gold.
The truth though is that both gold and USD have their advantages gold has the following advantages in addition to those listed by the governor
- It is often safer than shares because there is an inverse relationship between stock markets, USD and gold. This means that when both the USD and gold are not doing well gold is doing well.
- Gold’s value is derived from the market price of gold which is independent of any currency.
- Gold seems more portable than USD. You need less space to store your gold coin compared to similar USD currency.
On the other hand the USD has it’s own advantages:
- It is more liquid than gold. You don’t normally need to sell your USD as it is legal tender in Zimbabwe. You just walk into a shop and basically any part of the world and just make a purchase
- USD is widely accepted in a lot of countries
- It is easy to buy USD and it is a process that we are more familiar with
- You can easily tell fake USD currency apart while gold is a more tricky to identify
As clearly shown, depending your needs gold and USD are both good safe havens that you can use to safeguard your savings against economic storms.
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