Top export proves worth 50 years on
• Coin’s success shows it is possible to add value to SA’s precious metals if we develop local capabilities
Fifty years since it was introduced in 1967, the Krugerrand has built an indisputable legacy as one of the leaders in the global gold bullion investment industry.
“The Krugerrand has come a long way, and actually tells a story about SA’s endeavours to add more value to its precious metals for the export markets,” says Richard Collocott, executive head of marketing at Rand Refinery, the sole supplier of bullion Krugerrands to primary distributors in SA and internationally.
HIGH SALES
Since its launch, more than 53million ounces of gold (more than 60-million pieces) have been sold in the form of Krugerrands, more than its closest competitors, the Canadian Maple Leaf and the US Eagle.
The global appetite for gold supported sales of 1.1-million ounces of gold bullion Krugerrands in 2016 worth $1.3bn, making it the world’s bestselling new gold coin in that year. In 2016, the Krugerrand held a 26% market share of the global gold bullion coin market.
“The success of the Krugerrand shows it is possible to add value to our precious metals if we develop local capabilities and channel resources towards achieving these goals. It will take time and investment but it is something worth pursuing,” says Praveen Baijnath, CEO of Rand Refinery.
In the early days of SA’s gold mining, the crude bullion produced had to be shipped to London for refining. The concept of a local refinery had been considered for several years, but only in 1920 were concrete steps taken with the launch of Rand Refinery.
Now the largest integrated single-site precious metals refining and smelting complex in the world, Rand Refinery has since 1920 refined nearly 50,000 tonnes of gold — almost a third of all the gold mined worldwide. The Krugerrand, which it manufactures in partnership with the South African Mint, is one of the most precious products it has ever produced.
“The original intent behind the Krugerrand was to create a gold product that the ‘man on the street’ anywhere in the world could legally own. The Krugerrand’s status as a legal tender means anyone is allowed to buy it,” says Baijnath.
The purpose of the Krugerrand was to add value to SA’s gold production, which averaged 75% of the total global output between the 1960s and early 1970s.
“It was the earliest form of beneficiation of South African gold,” adds Baijnath.
Collocott concurs: “With the contentious debate surrounding SA’s beneficiation strategy becoming vocal during this decade, it is interesting to note that the main purpose of launching the Krugerrand way back in the 1960s was to add value to South African gold.”
In 1978, more than 6-million Krugerrands were sold, representing about 50% of gold produced in SA. Today, more than 20% of gold is beneficiated in the form of Krugerrands.
The first 22-carat gold Krugerrand was manufactured on July 3 1967, making this year its 50th birthday. In 1980, the fractional Krugerrands (½oz, ¼oz and 1/10oz) were added to the 1oz Krugerrand to enable investment in gold at more affordable prices.
In 2017, in commemoration of the 50th anniversary, onceoff limited edition collectible Krugerrands have been offered in platinum and silver.
“As a world class liquid asset, the bullion Krugerrand provides investors with an opportunity to purchase physical gold, which is recognised as a hedge against market uncertainty, as well as economic and political risk,” says Collocott.
He says an investment in the Krugerrand is secure as its face value is denominated in ounces of pure gold while other gold bullion coins have a face value well below the value of gold.
GUARANTEE
“This means that the South African Reserve Bank guarantees the purchase of any Krugerrand tendered for the ruling gold price on the day, whereas with other coins the issuing government only guarantees the face value.
“Gold, a safe haven investment, has become more attractive to investors in recent times due to low interest rates and global volatility among other geopolitical consequences stemming from events such as Brexit,” says Collocott.
“A hedge against inflation, a gold bullion Krugerrand bought in 1967 for $35 could return over $1,200 today. Because of its gold content, a Krugerrand can be readily liquidated into currency in most countries.”
STORED VALUE
One solid aspect of bullion investments is their resilience against the devaluation of currency caused by inflation. Historically, inflationary pressures have led investors to gold and other precious metals. This is because unlike currency, bullion investments do not lose their value as their “value is inherently stored” in the metal content.
The value of the Krugerrand is based on its gold content, which is linked to the prevailing gold price. When you buy a Krugerrand, a small premium is charged to cover manufacturing and distribution costs. Gold Krugerrands are not subject to VAT in SA.
ONE SOLID ASPECT OF BULLION INVESTMENTS IS THEIR RESILIENCE AGAINST THE DEVALUATION OF CURRENCY CAUSED BY INFLATION