“The Krugerrand is considered to be the most widely held and actively traded gold bullion coin in the world”
Back in 1967, when the Krugerrand was launched, it was merely another avenue to help market to the world the gold that South Africa was producing. If you wanted to buy this gold coin, you would have forked out roughly R26. But fast-forward 50 years to 2017 and the coin is worth an eye-popping R17 500. Named after former president Paul Kruger, who fought for South Africa to become independent from colonial rule in the late 1880s, the coin bears his face on one side and a springbok on the other.
But exactly how significant is the Krugerrand?
Arno Egen, the owner of Mr Kruger, a bullion specialist company that offers expert evaluations of gold, silver and other precious metals and stones, is an expert when it comes to the ins and outs of the Krugerrand. “The Krugerrand holds various meanings for the people who own them. For some, the coins are treasured for their investment value, while for others they fulfil a collector’s desire or nurture a sentimental memory,” Egen elaborates.
Egen is so passionate about this coin that he opened Mr Kruger in 2014. He is self-taught in the precious metal trade, and his interest in alternative investment options and portfolio diversification made trading in precious coins a natural choice. Mr Kruger has been approved by SA Mint and is a member of both the SAAND and the Jewellery Council of South Africa.
Today, Egen says that the Krugerrand is considered to be “the most widely held and actively traded gold bullion coin in the world”. Chairman of the South African Association of Numismatic Dealers (SAAND), Glenn Schoeman, echoes this: “The Krugerrand’s history is very significant, because it was the first of its kind in the world and it still leads the way.” For Schoeman specifically, this precious gold coin symbolises a legacy that started when his father began collecting them in 1967. Schoeman joined him in the business in 1985, giving him over 30 years of experience to date in the trade of Krugerrands.
Krugerrands currently sell for around R17 500. This may seem substantial for a single coin, but the return you could get in 50 years outweighs the cost. “It is impossible to predict exactly what the Krugerrand price will be in 50 years. However, we can consider the history of the previous 50 years, and take into account that the Krugerrand (since inception) has experienced an increase of 67 300%. If we then take the current price and increase it by the same amount, we arrive at a figure of R11 777 500,” explains Schoeman. He then further emphasises that this “is not an unrealistic figure, as economists and analysts are already predicting that the gold price could escalate to US$6 000 in the next five years.”
Another interesting aspect is that although the Krugerrand is legal tender, it doesn’t have a face value of what it’s worth displayed on the coin. Egen explains: “The reason for this is because the value of the coin is directly related to the prevailing value of its fine gold content. If the price of gold increases, so does the price and value of the Krugerrand. In a nutshell, Krugerrands were mass produced for the man on the street to easily buy and sell gold.”
This gold coin has had a significant impact on the South African economy over the last decade. Ettienne van Wyk, head of commodities at Rand Merchant Bank (RMB), says: “The Krugerrand brand is one of the 50 most valuable brands in the world. It is up there with Coca-Cola, Mercedes-Benz, Cartier and more. It is the most successful gold bullion coin in history, there are roughly 72 million of them in circulation worldwide. Many of the coins manufactured every year are exported, and therefore contribute positively to our balance of trade. The coins that are purchased by South Africans add to capital formation in the country; based on this, it would be fair to say that their impact on the South African economy has been significantly positive.”
It is an investment that could reap a very comfortable nest egg for future generations, should you choose to go this route. Van Wyk reiterates: “Gold has a very long track record of being a safe-haven asset and a portfolio diversifier. As such, most central banks in the world still add gold into their reserves mix – the same applies to most of the large balanced portfolios that are professionally managed.” He says that investing in the Krugerrand “provides protection against a volatile and depreciating currency. As its value is derived from its intrinsic worth, it acts as protection against financial market chaos and catastrophe.”
Time to purchase
Buying a Krugerrand is relatively straightforward, but there are five crucial steps that Egen believes both first-time and experienced buyers should always follow.
Before you buy a Krugerrand…
Step 1 – Do your research
“You want your vendor to be approved by both the SAAND – which maintains the highest standards of efficiency and integrity within the numismatic (coin and medal) industry – and the SA Mint, which manufactures coins on behalf of the Reserve Bank and also offers its services internationally,” says Egen. He emphasises that “the vendor you choose should be recognised by both these bodies, thus securing the integrity of your trade and the standard of the coin purchased”.
Step 2 – Consider the day’s pricing
“The current price of a Krugerrand is directly proportional to the gold index price, which is quoted in US dollars. To calculate a valid price, convert the ZAR to the USD exchange rate and multiply that by the listed price for gold. This is often referred as to the ‘spot’ price of an ounce of gold. Add to that figure a commission, which is charged by all vendors (this could be anything between 6 and 12%), and you will arrive at the price of a Krugerrand,” says Egen.
Step 3 – Make contact with the dealer, purchase and collect
Egen advises that you should contact the dealer directly, either by telephone or by visiting the store, so that you can be clear on what you want. Because the Krugerrands have different denominations, and you need to know what they are before purchasing. “Krugerrands come in one-ounce and fractional denominations, so you have the choice to buy either one-tenth, one-quarter, half an ounce or a full one-ounce Krugerrand. This will depend on what suits your budget and your investment plan. Not all dealers keep stock on their premises, so they would need to place an order. This will impact on the timing of your coin collection,” he says. The collection process includes signing documents (given to you by the vendor) and supplying valid identity documentation to confirm who you are. Then, Egen says you “will receive a certificate of authentication, which states the specifics of the coin and the value, which you will keep. You have the choice to take physical ownership of the coin or to put it into safe storage.”
Alternatively, you can make a purchase through your bank. Van Wyk says: “You can purchase them via your FNB internet banking profile, or you can invest via the JSE in the Krugerrand ETF. This can also be purchased online via FNB Share Investor.”
Today, we celebrate the Krugerrand in 2017 for the role that it has played in the ever-changing South African economy.
Five interesting facts about the Krugerrand:
· There are more Krugerrands in the world than all the other gold coins combined.
· The word “Krugerrand” is among the top 10 brands known worldwide.
· Since the first coin was created, more than 50 million Krugerrands in varying sizes have been minted.
· There are only gold Krugerrand coins; this distinguishes them from other modern bullion gold coins. However, in 2017, SA Mint is releasing special 50th anniversary silver Krugerrands. These are the only exception.
· The Krugerrand is exactly one troy ounce of 22 carat gold, which is 91.67% pure. The other 8.33% is copper – an alloy that makes coins harder and more resistant to dents and scratches.
Source: Mr Kruger; SAAND