FAQ

 

Investing in gold bullion, particularly in the form of Krugerrands, has become a popular choice for many investors seeking to diversify their portfolios. However, like any investment, it is essential to understand the associated risks. We've highlighted three primary risks: counterparty risk, market risk, and liquidity risk.

Counterparty Risk

One of the significant advantages of owning physical gold bullion Krugerrands is the absence of counterparty risk. When you own Krugerrands, you possess the gold outright, eliminating concerns related to the creditworthiness of any third party. In contrast, other forms of gold investment, such as unallocated gold accounts, gold exchange-traded funds (ETFs), or gold futures contracts, involve a counterparty. These investments expose you to credit risk, which is the risk that the counterparty may default or go bankrupt, potentially jeopardizing your investment.

Market Risk

Market risk refers to the potential for losses due to fluctuations in the market value of an asset. All investments, including gold, are subject to prevailing economic and financial conditions that can lead to price changes. The price of gold can rise or fall based on various factors, including inflation rates, currency strength, geopolitical stability, and changes in demand and supply dynamics. As a result, your investment in physical gold will inherently expose you to market risk, which can affect the overall return on your investment.

Liquidity Risk

Liquidity risk is the risk that you may be unable to sell your investment quickly enough to prevent a loss or to realize a profit. While gold bullion, including Krugerrands, is generally considered a liquid asset, there may be instances where finding a buyer at the desired price can be challenging. Factors such as market conditions, the quantity of gold you wish to sell, and the specific demand for Krugerrands can all influence your ability to convert your investment into cash promptly. It is crucial to consider these factors when investing in gold bullion to ensure you can manage your investment effectively.

In conclusion, while investing in gold bullion Krugerrands can offer a hedge against inflation and economic uncertainty, it is vital to be aware of the associated risks. Understanding counterparty risk, market risk, and liquidity risk will enable you to make informed decisions and manage your investment strategy effectively.