connecting financial solutions

Quality Gold and Silver coins

Financial Hub

The Financial Hub was formed and launched in 2002. It was birthed with the idea of bringing specialist together under one banner, so that a comprehensive service could be offered to our clients, as a “one stop shop,” as it were.


Two hubs were formed to service Cape Town: a southern suburbs branch, consisting of Dan Fraser, John Higson, John Moore, Alison Smekal and David Melvill. The northern suburb branch was formed with Julius Strydom, Willie Buchner, Marlo Steyn and Deon Brand.


David Melvill
focuses on educating investors on the valuable role of precious metals: gold and silver, and its necessity for their investment portfolios. He promotes the purchasing of gold and silver coins at exceptionally competitive pricing, with personalized service and honesty.

About David

David  Melvill focuses on educating investors on the valuable role of precious metals: gold and silver, in the economy and the necessity for their portfolios. 

David is fascinated by the history of gold, in addition he has a passion for gold, as a currency – he says, “It is the purest form of money.”

Services

Investing in silver. How is it different from gold? How is the price of silver determined? How to start investing in silver?

Contact

David Melvill

Cell: 083 284 2202

Email: davidm@financialhub.co.za



Blogs, Talks and interviews

"Price is what you pay, value is what you get."

Arguably, Warren Buffett is the finest living investor. He believes in only purchasing a small handful of select shares and applying, "A buy and hold strategy."

"Price is what you pay, value is what you get."

This Buffett quote could be one of our most important investment lessons.

He refers to three types of value:-

Price And Value:

Both price and value are the two sides of the same coin.

Understanding the difference between price and value is the core principle of value investing.

The quality is the same. The only thing that changed is the amount of money you need to pay for it. Same value at a higher price.

Three types of value that you should know:

Whether you are purchasing a product or coins, there are three types of valuing things:

  • Relative value
  • Absolute value
  • Perceived value

Let’s discuss each value type one-by-one.

1. Relative value:
Relative value is the valuing of how much the product is worth by comparing it with its competitors.

Similarly, while performing a relative valuation of coins, do not compare just two products, try and consider the industry average.

2. Absolute value:
This is a pretty straightforward method of valuation. Absolute value aims to find how much the product is truly worth by considering its intrinsic features.

If the product is known, you can easily find out whether it is under or overvalued.

If the coin is trading at a market value below its intrinsic value, then it is undervalued or cheap. On the other hand, if the market value is above its intrinsic value, then the company is overvalued or expensive.

Once a coin is known, you can easily find out whether it is under or overvalued.

If the product is trading at a market value below its intrinsic value, then it is undervalued or cheap. On the other hand, if the market value is above its intrinsic value, then the product is overvalued or expensive.

3. Perceived Value:
This is the third valuation method and can be considered a little dangerous. Here, the value of the object depends on what the people assign to it in mind.

The perceived value is completely unrelated to the absolute value.

For example, the value of a collector's coin totally depends on how much you will perceive it in your mind.

It totally depends on the perception of the buyer.

The most common example of perceived value:

The price of coins you can see in your day to day life.

Although you can quote a price for your coin, however, the selling price will totally depend on the perception of the buyer. You might convince people to pay a higher price, however, the bargain depends on how much the buyer wants to pay.

Despite having the same quality, different people will quote a different price for your price.

Overall, the perceived value of the coin will be the price that the person will be willing to pay.

Coin prices reflect perception.

The coin market also works on the perceived value.

Moreover, many a time, these perceived values of the product are influenced a lot by the analyst’s recommendations and the market news.

As the underlying product remains the same, it doesn’t make much sense to overpay.

Whether you pay high or low for the product, the value won’t change.

Summary

There are three types of value that every investor should know:

Relative value: It is the valuing of how much the product is worth by comparing it with its competitors.

Absolute Value: The product is value based on its intrinsic features.

Perceived Value: It depends on the value assigned by the buyer in his mind.

Moreover, the coin price reflects perception. Here, the price and value are different and most of the time unrelated to the coin market.

This is true only for the short run. Over a long period of time, the price will approach the value. That’s why if you purchased a coin when it was overvalued and have the patience to hold it for a long duration, then it certainly will reach its true value in future and give you good returns.

The best way to acquire gold

 

The best way to acquire gold is through Krugerrands (KR’s). It is seen as legal tender and not subject to VAT or income tax, if it is not traded.

 You may ask about the “DOWNSIDE of gold.”

 ·       The first reason would be initial costs of a Krugerrand. If purchased today and sold back tomorrow, there would be cost of 8% that would be lost.

·       The purchase price of a Krugerrand is the spot price of gold plus 4,5%. This covers the melting, refining and striking of the coin – the Rand Refineries’ costs.

·       Then there is the marketing costs by the shops and distribution channels. This is typically between 3 to 4% of the value.

·       In my instance, as I do not have the overheads, I am able to reduce it to 2% for you. This is a savings of 2% for you on the purchasing price.

·       Similarly, when you wish to sell your Krugerrand, a shop will offer you the spot price of gold. I am able to offer you spot plus an additional 2% as a bonus.

·       This means your downside through me would only be a loss of 4% instead of 8%.

 What about the "UPSIDE of gold?"

 ·       Gold is not an investment, as it does not change in its nature, it will always only ever be an ounce of gold. It does not pay dividends nor interest, it is not designed to do so.

·       It is primarily a way of protecting your purchasing power. With a weakening rand due to inflation, caused by the increase in the money supply.

·       In 1967, when the Rand Refinery started striking one ounce coins, gold was fixed at $35 or R 27 an ounce. Today it is R 33 000+, that is more than 1 000 x increase over the 55 years.

·       Gold was fixed at $35 an ounce until 1971 when Pres. Nixon closed the gold window and the world went off the gold standard.

·       This mistrust in governments and central banks caused gold to increase to $850 per ounce over the next nine years, a return of 42% per annum.

 Storage options

 ·       Your Krugerrands can be stored at the Rand Refinery if we purchase from them. The fee is 2,3% pa including Vat. This covers vaulting, insurance and an annual audit fee.

·       Alternatively, they can be stored in a CT vault at a fee of 0,81% per annum. There is no charge on the first R 250 000 of value.

·       Lastly, one can take possession and store them at home.

 The price of a Krugerrand (KR) at present on promotion

 The spot price of gold is a moving target.

·       Raw gold: $1785 x R 17,57                = R 31 362

·       Melting, refining & striking 4,5%       = R   1 411

·       Marketing fee of 2%                           = R      655

                                                                        ----------------

Total                                                               R 33 428

                                                                        =========

How has gold done over the 10 last years?

It was a bit of a shock result when I opened up the charts.

The 10 year period is a good long term period. Here are two charts, one in dollars and the other in rand.

Gold in dollar terms?

 If you were a US citizen, you would be very disillusioned. The gold price for an ounce is now $1800, ten years ago it was $1700. That is a mere $100 or 6% growth over the period. Hands up if you think gold is a good investment on this basis. I have to agree, it is a shocker!

Gold in rand terms?

 For South Africans, the rand chart reflects that 10 years ago gold was R 15 000 an ounce. Today it is R 31 000. This is a whopping R 16 000 growth or 106% return on investment.

 Why has gold done so much better in rand terms?

 SA has used the printing press to devalue the rand. The more paper money there is in circulation, the more the currency devalues.

 Has the US not printed many trillions of dollars now lately?

It has indeed. So why is there no reflection of this in the gold price? Maybe it has something to do with the US holding the world’s reserve currency. As long as confidence in the dollar remains, they will do alright. Time seems to be rapidly running out. 

What will happen when the world’s monetary system implodes?

That is when gold and silver will be the anchor again to our financial system, as it always has been since man’s existence (Genesis 2: 10 – 12).

The Gold-Oil Ratio

The Gold-Oil Ratio, What Is It Telling Us?

The gold-oil ratio is a method used to determine the value of one commodity, priced in terms of the other. Simply put, the ratio determines how many barrels of oil can be purchased by one ounce of gold.

Historically, the gold-oil ratio holds a 16:1 long-term average. However, In April 2020, (just as lockdown was starting) the gold-oil ratio reached its highest level ever observed. The ratio reached 91:1 as depicted in the graph. Gold was $1820 and oil was $20.

 The gold-oil ratio is a good indicator of the health of the economy, a low ratio indicates a healthy economy; whereas, a higher ratio indicates an economy in distress. Furthermore, it is also recognised as a measure of the volatility that comes from significant political and economic events. Thus, it is evident that the COVID-19 pandemic increased the volatility in the financial market tremendously.

High oil prices tend to be associated with higher rates of inflation and lower periods of economic growth. With gold being a popular hedge against inflation, there should be a degree of correlation in any price movements.

Historically, the gold-oil ratio has been a reliable indicator of when to invest in oil and when to invest in gold. The lack of a tight correlation between the price of oil and gold, is what makes the gold-oil ratio meaningful. As South Africans, we can only really invest in Sasol, which is primarily a chemical company, with a fuel section. The share price has soared as the oil price has risen.

In order for the gold-oil ratio to return to its historic average, oil prices had to rally by (roughly) 590%.

Today, at the time of writing, would you believe it, it is spot on with its long term ratio? gold is at $1 867/oz and oil at $118/barrel. As such the gold-oil ratio is 16. The bottom line here is that oil was considered cheap relative to gold, it surely was. History is always our guide.


My comment

Supply and demand could drive oil prices still much higher. My view is that we will see the price of gold and oil rise in sync for a while, especially while the world is facing rapidly rising inflation and the uncertainty of a dragged out war in Asia.

Nonetheless, oil has had its run, I am now expecting much much higher gold prices.

Update on the fuel price increase

A quick update on the fuel price increase.

 

Petrol is increasing by R 2,33 to R 23,52 and diesel is increasing by R1,10. For most of us this is a big relief.

 

There was uncertainty as to what the Treasury would do regarding the extension of the R1,50 fuel levy tax relief. If this was not granted we could have faced increases up to almost R4 per litre.

 

Around R6 billion of the state's strategic oil reserves were sold to fund the levy cut. But the sale will not entirely fund the extension.

 

Yesterday morning, economist, Dawie Roodt, shared some good insights on RSG radio as to who contributes to the government’s fiscus (basket/“Mandjie”)

 

Roughly speaking:-

40% - individual tax, by far the majority of tax is collected this way.

30% - VAT – value added tax on all goods and services.

20% - company tax

8% - fuel tax

2% - all the other taxes make up the balance.

How do you know if oil is expensive or not?

If you measure the price oil in US dollars, over the last 72 years, you would get the impression that it is about 30 times more expensive today!

The fluctuating value of the dollar makes it very hard to gauge whether oil prices themselves are rising or falling. Oil today, measured in gold at 1.5 grams per barrel is cheaper than it was in the early 1950’s.

As you can see in the long term chart, oil is a volatile commodity, with its price swinging wildly in a range from less than 1 gram per barrel to almost 5 grams per barrel. But this chart also shows that these oscillations are part of a sideways price movement centered around 2.5 grams per barrel. Crude's current price around 1.5 grams is quite a bit below its historical average.

"Black gold" (oil)

I thought we should focus on the "Black gold" (oil) today, as it is affecting us badly. Here is a brilliant article by Tim Cohen, the editor of Financial Mail.

 

Fueling suspicions of ineptitude

 

            Why is the petrol price in SA so high? I’m going to shock you now. You are really not going to believe this. It's going to come as a terrible surprise. The reason SA’s petrol price is so high is because …. the government fugeled up.

 

            (Fugeled is not in fact a word, but I think you probably know what I mean.)

 

            The ball was dropped spectacularly by the most obvious candidate, as it has so often before: our government.

 

            It's not to do with OPEC, although they didn’t help. Cartels never do. It's not to do with the supply chains, although they are a factor. It's not to do with the war in Ukraine, although the Russian invasion does carry some of the blame.

 

            How does one get to this conclusion? Allow me to explain.

 

            The oil price has just breached R$120 a barrel, and this is obviously not good. Fuel, like electricity, lies at the base of the value chain. Increases to the electricity price and the fuel price rip through the economies of the world, and make life a bit more difficult for everyone.

 

            But here is the thing. Between 2008 and 2014, the oil price was around $100. Assume global inflation of around three percent since then, and we are now at roughly that level. It feels like oil prices are very high now because since 2014, oil prices stagnated. Between 2015 and 2020, oil prices were around $60 a barrel.

 

            But look at global growth through those two periods, and you really don’t see much difference. If you exclude the 2008 global financial crisis and the 2020 Covid-19 crisis, average global GDP growth was in fact slightly higher (3.7%) in the earlier period when the oil price was higher and lower when the oil price was lower in the latter period (3.4%). And this make absolute sense, in fact, because higher growth requires more gasoline which means the oil price is probably more in demand so the price was higher.

 

            To what extent is the OPEC cartel keeping the price high? This is very hard to say, and frankly I don’t know. OPEC members are extremely sensitive to the claim that they hold the price up, and OPEC itself styles itself as an organisation which tries to balance supply and demand, in order to avoid huge jumps, rather than a cartel designed to boost, or maintain, the price at a certain level. But they would say that wouldn't they.

 

            If it were OPEC’s aim to keep the price up, or to keep it stable, you can’t really say they are doing a great job, given that the oil price dropped to $17 a barrel in 2020 and is now at levels not seen since forever. OPEC anyway only represents about half of global supply, and recently, the organisation has found it difficult to agree on anything. OPEC are also a bit on the back foot; the world is gradually aiming to use less oil, even though it might take longer than it should. All in all, blaming OPEC is a fool's errand.

 

            So that leaves our beloved government. First, just consider this. The price of petrol in SA is currently R21.51 for coastal unleaded 93 octane, which translates into $1.36 per litre. The current price in Botswana is 13.9 pula, which is about $1.15, quite a bit cheaper. Petrol in Germany is $2.24 per litre, quite a bit higher. And in the US, it's about $1.25, more or less the same as us.

 

            But generally, it's actually hard to find a country in which the petrol price is higher than SA outside of Europe. How did this happen?

 

            Essentially, it comes down to budgeting inaccurately. The actual petrol price component of SA’s petrol is just less than half the price at the pump. The rest comprises the road accident fund levy (11%), the general fuel levy (19%), and designated mark-ups for the retail and wholesale trades.

 

            Since 2008, there have been 12 increases in the fuel levy and the RAF levy. Careful calculation shows that this implies an increase every year. Yes, without fail. And careful observers will notice that increases took place generally above inflation. But there was a really massive increase in the RAF levy and the tax levy in 2015. And that was because there was a sudden hole in the budget because government expected growth to be much higher at budget time than it turned out. So, because oil prices were in fact low at the time, the government solved the “hole in the budget” problem with a quick fix; more petrol tax.

 

Taxing petrol has the huge advantage that it's difficult to avoid and easy to collect. But SA’s a big country with terrible public transportation. So petrol price increases hit the poor very hard. Now that the oil price has risen, as it inevitably does from time to time, the government is in a fat pickle. What we, as citizens, should not do, is blame the Russians, or the Saudi’s or anyone else. The problem lies with us.

 

Tim Cohen

When Federal Reserve raises rates, gold appreciates 100%



1JPG

Mark Twain observed, “History may not repeat itself, but it often rhymes.” Where I sit today, there’s a great deal of inflationary “rhyming” all around us. The best way to protect your purchasing power is with gold David Melvill - davidm@financialhub.co.za or 083 284 2202
The hidden investment gem – Krugerrands

A radio interview on Krugerrands, you may wish to take a read or a listen?

Independent financial advisor David Mevill, a long-time gold bull, shared his insights regarding the benefits of holding Krugerrands as an alternative investment. Amazingly, David says gold has been the best performing asset class over the past 50 years. Gold is known as a safe haven asset that performs well during economic turmoil and during inflationary periods, where it is seen as a store of value against eroding purchasing power. – Justin Rowe-Roberts

https://www.biznews.com/global-citizen/2021/06/09/krugerrands-melvill