Uncertainty. People who trade gold for a living don't mind it so much; they often make money on uncertainty. But investors who depend on gold to maintain the worth of part of their portfolio hate uncertainty. That's why the controversy over South Africa and its Krugerrand is of so much interest. After all, when Americans were permitted to buy gold a decade ago, it was South Africa, the world largest supplier of gold, that was first in the market with a solid-gold coin whose value could be tracked simply by checking the price of gold in the local newspaper.
Once the Krugerrand proved there was a market for gold coins, Canada, Mexico, and Austria weighed in with one-ounce coins of their own.
Until the last year or so, however, the Krugerrand was still king, the benchmark against which all the other coins were measured.
But growing violence in South Africa, along with increasing international pressure on that government to alter its apartheid policies, has significantly raised the level of uncertainty.
This uncertainty increased last week when Deak-Perera US Inc., the nation's largest dealer of precious metals and foreign currency, announced a suspension of retail sales of the Krugerrand pending congressional action on legislation that would ban imports of the coin. The firm will continue to buy back Krugerrands from individual investors and either export them or resell them to wholesalers.
Nor has it helped that in the last week the price of gold has dropped $7 one day, moved up $3 the next, and down $4 another day.
Now, investors wonder, should they hold on to their Krugerrands if they have them, buy something else if they don't, or look into gold-mining stocks, mutual funds, or certificates of ownership?
People who own Krugerrands now should not worry about the value of their investment, says Hans Black, president of Interinvest Corporation, an international investment management firm with offices in Boston and Montreal.
``This won't affect the future ability of anyone to sell the coin,'' Mr. Black asserts. ``Gold is gold, whether you call it a Krugerrand, a [Canadian] Maple Leaf, or whatever.''
If there is any difference for Krugerrands, it will most likely be seen in something called the premium. Because gold coins are easier for investors to buy, store, and sell, they are sold at a few dollars' premium over the current price of gold quoted in London or New York, for example. Currently, the Maple Leaf is selling for $12 to $15 over the latest gold quote, while the Krugerrand carries about a $9 premium.
Should Congress vote to ban the Krugerrand, and should President Reagan go along, the coin might become a bit more difficult to trade -- at least until the ban starts giving it some special value. For investors who are not concerned where their coins come from, this could present some opportunities.
``If you're buying to hold, not trade, I'd suggest the Krugerrand,'' says Jeffrey Mosseri, a senior vice-president and gold analyst at Goldsmith & Harris, a New York investment research firm. ``I would guess that the premium over price of gold would go higher if the coin was banned.''
``If you're interested in liquidity, I'd stay with the Maple Leaf,'' he continued. As long as the political situation in South Africa is uncertain, it should be easier to find a buyer and perhaps a slightly higher price for Maple Leafs and other non-South African coins.
Those who believe the price of gold is about to be pushed up by a weaker dollar and higher inflation -- as many people do -- and want a piece of this action without having to decide what coin to buy might want to consider gold mining stocks or mutual funds. Here, the experts say, the situation in South Africa could be more important.
``When South Africa set up the emergency measures, they set up a political risk,'' Mr. Mosseri says. ``I'm very concerned about the political risk turning into an economic risk.'' For this reason, he favors buying stocks in gold-mining companies, particularly in North America or Australia. He does not favor mutual funds in which South African mines are part of the portfolios.
``Australian and Canadian stocks have benefited greatly from the political problems in South Africa,'' Black agrees. A broker or financial adviser should be able to tell you which stocks have the best outlooks.
The recent performance of gold funds seems to bear out this thinking. In the second quarter of 1985, gold funds occupied three of the top 10 positions for the biggest losers, according to Lipper Analytical Services Inc. While gold funds may have a bad quarter, they have had fairly good performance over the last several years.
``When I put money in gold, I go with funds,'' says Fletcher Means, a financial planner in San Jose, Calif. ``It's the only way I can get income.''
However you invest in gold, Mr. Means suggests, it should remain a fairly small part of the overall portfolio. ``I suggest only 5 percent of the portfolio be put in gold,'' he says.
Because gold does not actually increase an individual's net worth over the long run as other investments can, other financial advisers urge similar caution, though they may go as high as 10 percent.
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