Golden prof­its

But be ex­tremely cau­tious be­fore in­vest­ing in col­lec­tor coins

Finweek English Edition - - Creating Wealth - VIC DE KLERK vicd@fin­

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

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