But be extremely cautious before investing in collector coins
THE PRICES of gold coins, especially the Protea series and the Nelson Mandela ones, have risen very sharply over the past couple of years – particularly the 2004 commemorative coin of South Africa’s former President, with its price increasing by more than 500%. The doubling plus in the gold price, especially in rand, obviously helped to push up the return on collector coins to a level stock market investors can only dream about. But just as with shares – regardless of whether they’re banks, IT or resources – investors must remember such a sharp increase is very often followed by an equally sharp correction.
Be extremely cautious with new investments in collector coins. Study the market and all the options thoroughly before investing any short-term money or money that must earn a dividend in gold coins. Remember also that the handling costs on collector coins are very high. The difference between the buying and selling price is often as much as 20%, or even higher. You should allow for the difference, plus the handling costs being as much as 30% of the selling price. That could easily eat up a large share of your profit, if not all of it.
Over the past weekend Investgold advertised their new product – the socalled “co-ownership” of gold coins – fairly prominently in the Sunday press. It’s similar to fractional ownership that until recently supported the prices of some expensive holiday homes. In one way it’s a good plan to make the coins more affordable to the general public – but be careful. For example, Investgold offers a 10% interest in a 2004 Nelson Mandela 1oz gold coin at R5 200. That means it puts the coin’s full value at R52 000.
However, its commercial equivalent, the ordinary Krugerrand, trades at just under R10 000. So Investgold is putting a collector’s premium of R42 000 on the coin – five times its intrinsic value. That’s a bit steep.
On Bid-or-Buy, the same Mandela coins are being offered at R38 000. OK, that’s expensive and not always affordable for small investors. But just as in the property market the premium of more than 30% being charged by Investgold for co-ownership rather than the direct cost for a single owner looks rather expensive.
Of course, the forces at work in the collector market are completely different from those in the ordinary market. But before investors decide to join the collector market at this late stage it’s advisable to think the thing through properly.
About three decades ago, Eli Levine, of the SA Gold Coin Exchange, succeeded on his own in creating a market for socalled proof Krugerrands. He gave different gradings to the proof coins and in that way gave far higher prices, often in large multiples, to those coins compared with ordinary Krugerrands. That market collapsed all of 20 years ago and never recovered.
Right up until today, the SA Mint – that’s the nice-looking building next to the N1 between Johannesburg and Pretoria, with its fountains with golden water – mints proof Krugerrands and sells them to the public. The price is usually around 30% more than that of an ordinary Krugerrand, which is also struck by the SA Mint and then delivered to Rand Refineries, from where they’re distributed to its clients.
The SA Mint’s Natanya van Niekerk says the stamp with which proof Krugerrands