Mining Weekly

A gold accumulation plan – a savings plan whereby a sum of money is invested monthly in gold – would be popular in South Africa, an industry observer says, but such an initiative would contravene the country’s current legislation.

Minerals Bureau economist Ashok Damarupurshad, in the Minerals Bulletin, states that a gold accumulation plan entails a commitment from an investor to invest a fixed amount of money every month, usually for a minimum period of one year.

On closing the account, the investor can take possession of the gold in the form of bullion bars, coins, and sometimes in the form of jewellery. The investor could also choose to get the cash equivalent, should he wish to sell the gold accumulated in his account.

However, while gold (and platinum) accumulation plans are available in Japan, and are starting to feature in other countries as well, South Africa’s current legislation restricts the possession of, and dealing in, unwrought gold to precious-metal licensees, permit holders and other authorised persons.

General citizens, Damarupurshad commented, can only ‘possess’ precious metal in the wrought form as jewellery, or in the legal tender form as Krugerrands and other legal tender precious-metal coins.

“Consequently, gold accumulation or savings plans would contravene South African legislation (Mining Rights Act, 1967 and exchange control regulations) relating to the possession of and trading in unwrought gold by general consumers.” However, Damarupurshad believes that this technicality could easily be rectified if the Reserve Bank were to approve the principle of such accumulation or savings plans.

“The Mining Rights Act of 1967 is currently being amended and should provide an opportunity to draw a distinction between ownership (perhaps in the form of a document of title) and physical possession of unwrought precious metals. Once the distinction between ownership and the physical possession of unwrought precious metals has been defined, the conditions for physical delivery after the accounts are closed would have to be modified, as current South African legislation prohibits consumers from taking possession of gold in the bullion bar form,” Damarupurshad commented. A resolution of this problem, he argued, could take the form of allowing an investor choosing to sell to receive payment in either Krugerrands or the cash equivalent. However, as South Africa is a country with a policy to advance jewellery manufacturing, the prospect of having gold accumulation or savings plans combined with toll-manufacturing of jewellery could be well received by government.

A recent initiative by Absa Bank, allowing South African institutional and retail investors to invest in gold bullion, sidesteps the issue of physical ownership. This investment product consists of JSE Securities Exchange-listed securities, called NewGold Gold Bullion Debentures, which are fully backed by gold bullion. Each debenture is initially valued at 1/100 of one fine troy ounce of gold, and is issued by NewGold Issuer Limited, a public company.

Proceeds of the issue of debentures will be used to acquire gold bullion, in the form of 400-oz London Good Delivery Bars, and will be held in safe custody by Rand Refinery.