Gold is a commodity that is favoured in times of extreme volatility and is seen as a safe haven for investors, says Nicholas Riemer.

Global markets have been volatile in recent months with a major decline in March, followed by a strong recovery in April through June. This has resulted in investors exploring other asset classes to reduce portfolio volatility as uncertainty remains.
One such diversification tool is gold. Gold is a commodity that is favoured in times of extreme volatility and is seen as a safe haven for investors. Its price tends to increase when uncertainty results in diminished returns in other asset classes.  In April, we saw the rand price of gold reaching record levels. As gold is valued in dollar terms, a depreciation in the rand as recently seen has been positive for returns.
20-year gold price in ZAR/oz.
While the above graph makes it seem as though gold only moves in one direction, the reality is that the gold price in rand terms will fall when the rand strengthens, or conditions normalise. The price of gold can move sideways for years while the market moves up. Gold should therefore be viewed more as a diversification tool when the underlying commodity has performed very well over a given period and the rand is weak.
20-year gold price in USD/oz. and the USD/ZAR exchange rate
Gaining exposure to gold
There are multiple ways to obtain exposure to gold. One can invest in gold mining shares, gold exchange-traded funds (ETFs) and directly through Krugerrands.
Krugerrands:
The Krugerrand is a South African gold coin. Krugerrands were first minted in 1967 to help market South African gold. The coins have legal tender status in South Africa but are not intended to be used as currency. New Krugerrands are issued by the South African Reserve Bank (SARB). Krugerrands are essentially an ounce of gold and can be directly translated to the global price of gold in rand terms.
Gold ETFs:
Gold ETFs track the price of gold in a specific currency. For example, the Absa New Gold ETF is listed on the JSE and the FirstRand Krugerrand Custodial Certificates tracks the rand price of gold. Absa will physically own the gold FNB will physically hold the Kruger Rands that are being tracked.
Direct shares:
Investing in gold company shares on the JSE is one way of obtaining exposure to the gold price. The change in the gold price will affect the profitability of the company and, in turn, its share price. There are, however, other factors that must be considered like operational risks (strikes, poor capital allocation, etc.). There are many gold companies locally and globally to invest in to gain gold price exposure.
Gold prices have reached record highs on the back of global fears about COVID-19. Certain analysts think that gold can reach up to $3 000 per ounce, more than 50% above the last recorded price. Whether or not this will materialise will remain to be seen with many unpredictable factors still to play out. Gold is not an asset to be considered by investors looking for large returns overnight, but rather a place of safety hedging against negative market events and a weaker currency.
Nicholas Riemer is FNB Investment Education head. Views expressed are his own.