Tony Coleman, one of the pioneers of investment in precious metals in New Zealand, did the math to see who came out on top – KiwiSaver, shares or gold.
It was a calculation spurred, he says, by gold's record-breaking returns over the pandemic and lockdown months when it punched through the US$2000 per ounce mark for the first time in history – but also to see how gold compared as a longer-term investment.
"I decided to go right back to the formation of KiwiSaver in 2007," says the managing director of NZ Gold Merchants Ltd, "and see how the managed fund performed vis a vis the NZX share market and against gold."
To assess KiwiSaver, he used an ANZ balanced fund return, compounded over 13 years, finding an average compounded return of 10.18 per cent per year.
For the NZX, he assumed a $10,000 investment based solely on the index – and calculated a 21.4 per cent return per year over those 13 years.
Gold? Even with two poor years in 2012 and 2013, Coleman says gold produced an average of 23.4 per cent per year over the same period.
Coleman says there are three main stages which explain why gold has performed so well during the pandemic and lockdowns around the world – and why it still has a bright future, he says. Gold climbed to a record high of US$2060 per ounce before settling back to a range hovering between US$1890-$1915 per ounce.
First, panic, as people looked for a safe haven back in March in the face of what seemed to be a global downturn sparked by the virus. Gold's price actually dipped – because many investment managers had to sell up to support other investment positions they had.
Second, FOMO – fear of missing out – applied. People with cash seized on gold's lower price and bought…and bought, sending the price through the US$2000 mark.
NZ Gold Merchants, which dates back to 1975 and refines gold as well as trading in gold and silver for customers, felt the surge of demand. They had, says Coleman, orders for 500kg a day over lockdown – but could only produce 200kg a day. "We have only just now caught up with orders from April and May."
The third stage was over-buying as more jumped on the gold bandwagon, with profit-taking following soon after. Gold settled back in that range around US$1900 and Coleman says he believes the price will rise yet.
Often, he says, he advises people not to buy gold, waiting for the right time. He thinks now is still the right time: "Last year there was a 35 per cent increase. This year, it will be about the same – 35 per cent up. Next year, I think we could see 40-45 per cent.
"What's happening around the world is that governments are having to borrow or create money to live through the pandemic – which is distorting everything. Large amounts of money creation and borrowing will continue to feed this market; an increase in the money supply means we are hyper-inflating the [US] dollar.
"Other markets will do well too but, when I talk to customers about buying gold, I mostly talk risk – because gold has less risk. You have to be a bit of an expert to do well in shares while the risk in gold is more perceived than real – you just have to look at gold's performance over a great many years to see that.
"If you buy at the wrong time, sure, it can take a long time to really pay off. But if you have money sitting in the bank, that is not a great place for it right now – you are effectively losing money every year."
The 2012 and 2013 downturn in gold was sparked by the 2008 global financial crisis, he says. In the aftermath, credit became cheaper and people felt less need for the protective shelter of gold – instead investing in property and a rising market worldwide.
"So I always say that the upside of gold is very, very good while the downside is very, very limited," says Coleman.
*NZ Gold Merchants began in 1975 and brothers Tony and Richard Coleman began buying, refining and selling gold and trading in precious metals in 2006. They were the first New Zealand company to produce local silver bars and the first to offer gold chain manufactured with local gold.
For more information: gogold.co.nz