50 years of Krugerrands

STILL A GREAT RAND HEDGE: UNCERTAINTY IS DRIVING DEMAND FOR THE GOLD COINS

Ratings agencies may be ignoring the possibility of World War III breaking out, but Krugerrand investors aren’t taking any chances.

The Krugerrand – dubbed the world’s first, most successful and widely-traded gold bullion coin – this year celebrates 50 years since its first minting. It was mainly created to add value to, and create a premium for, SA gold sales. “It’s more than exceeded any expectations that could have been had at the outset,” says Richard Collocott, Rand Refinery’s executive head of marketing and a director of Prestige Bullion, the Rand Refinery and SA Mint joint venture.

Money spinner

Since inception, just less than 53.5 million ounces of gold in Krugerrands have been sold and over $21.5 billion of forex revenue generated.

Of the Krugerrands produced, about 90% have been sold internationally, says The Scoin Shop executive chairperson Alan Demby.

“As an example of appreciation, a R10 000 investment in Krugerrand coins in 1967 would today be worth R6 million to R7 million,” he says. A 1967 proof Krugerrand trades for about R40 000 today.

In 2016, the Krugerrand was the world’s top-selling gold coin, with $1.3 billion in sales – for the first time since 1980, says Collocott. “We anticipate that we should retain our number one position for 2017 also.”

The question investors will be asking is, does it still make sense to invest in Krugerrands?

“There’s a lot of political, geopolitical uncertainty coming into play. These are the conditions under which gold is extremely popular, because it’s a hedge against political uncertainty, a safe-haven asset,” says Dr Ebrahim Patel, commodities strategist at Rand Merchant Bank (RMB).

As the gold price is denominated in dollars, it’s a rand hedge asset. If the rand weakens and the gold price stays the same or doesn’t weaken as much, South Africans benefit in terms of their gold investments.

Collocott agrees. “Demand for coins is a function of uncertainty…. The Krugerrand is in essence a pretty good bellwether for the state of the world, because it’s a retail gold product.”

Krugerrand demand has risen steadily since December 2015’s Nenegate, Collocott says.

There’s also been very strong demand in the Eurozone, on Brexit and French election concerns.

“I don’t see massive global stability over the next five years. Gold’s here to stay,” Collocott forecasts.

Paper tigers

Patel also foresees the use of gold coins and other physical gold investments increasing in time, as gold is a global currency and as people become wary of paper currencies.

“The Krugerrand has been widely successful (as a way of getting gold exposure). It’s among the world’s most circulated bullion coins, it’s iconic… very durable. I think we are going to see its use going from strength to strength.”

Tomorrow: buying and storing Krugerrands.