The world’s most pop­u­lar gold coin is ac­tu­ally le­gal ten­der

It is the world’s most pop­u­lar gold coin, an in­ter­na­tional cur­rency that can be bought in Jo­han­nes­burg and ex­changed for cash in Dublin or Dubai. And be­cause it is is­sued un­der author­ity of the re­serve bank, it is le­gal ten­der, Gavin du Ve­nage re­ports

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CAPE TOWN // The world’s best sell­ing gold coin, the Kruger­rand, is still go­ing strong af­ter half a cen­tury in pro­duc­tion, as it re­tains its al­lure as a store of value.

The Kruger­rand was first minted in 1967 to pro­mote South African gold; it was the world’s first coin aimed specif­i­cally at in­vestors rather than col­lec­tors. It is named af­ter Paul Kruger, the Boer leader who led the Transvaal repub­lic against the Bri­tish in 1899. It is his dour pro­file that graces one side of the coin, with a more cheer­ful danc­ing spring­bok on the other.

But it is not the Kruger­rand’s du­bi­ous art­work that draws in­vestors. “An in­vest­ment in Kruger­rands is es­sen­tially an in­vest­ment in gold,” says Ebrahim Pa­tel, a com­modi­ties strate­gist at Rand Mer­chant Bank in Jo­han­nes­burg. “Gold has a multi-mil­len­nia his­tory of be­ing a sought-af­ter store of value.”

Gold is now so firmly an in­ter­na­tional cur­rency that a Kruger­rand bought in Jo­han­nes­burg can eas­ily be ex­changed for cash in Dublin or Dubai.

The coins are pro­duced by the South African Mint on be­half of the coun­try’s re­serve bank. Ac­cord­ing to the mint, sales of the Kruger­rand run at about 1.1 mil­lion ounces a year, or about 25 per cent of the global mar­ket for bul­lion coins. It is par­tic­u­larly pop­u­lar in Europe, es­pe­cially in Ger­many, the mint says.

The coin has not al­ways served the best in­ter­est of its mak­ers. Dur­ing South Africa’s apartheid years it be­came a go-to way to smug­gle wealth out of the coun­try, at a time when the white na­tion­al­ist govern­ment re­stricted the amount of money an in­di­vid­ual could move abroad.

In one in­stance dur­ing the late 1980s, cus­toms of­fi­cials in­spect­ing a Rolls-Royce loaded into a con­tainer for ship­ment to the United King­dom for re­pairs, found a bag of Kruger­rands hid­den in its spare wheel. They, and the car, were con­fis­cated.

The 1980s were not a par­tic­u­larly happy time for the Kruger­rand. It be­came the fo­cus of world­wide anti-apartheid sen­ti­ment, es­pe­cially as the spring­bok was at the time the sym­bol of the coun­try’s na­tional sports teams, which were al­most ex­clu­sively white.

In 1985, the US pres­i­dent Ron­ald Rea­gan en­acted a ban on its im­port. “The Kruger­rand is per­ceived in Congress as an im­por­tant sym­bol of apartheid,” Rea­gan wrote in his mis­sive to pol­i­cy­mak­ers. “This view is widely shared by the US pub­lic. I am di­rect­ing this pro­hi­bi­tion in recog­ni­tion of these pub­lic and con­gres­sional sen­ti­ments.”

A United Press In­ter­na­tional re­port from the time said more than two mil­lion Amer­i­cans had coins salted away in safes and trunks un­der the bed.

A decade later, apartheid was gone and South Africa was now led by Nel­son Man­dela’s African Na­tional Congress. There was talk at the time of the new Man­dela govern­ment scrap­ping the Kruger­rand and re­plac­ing it with some­thing un­tainted by a racially tar­nished past. This idea was soon scrapped, though, as by now the coin’s brand was so well es­tab­lished that the mint con­tin­ued to pro­duce it.

The de­ci­sion has paid off for South Africa, which for much of the past cen­tury was the world’s num­ber one gold pro­ducer. Ac­cord­ing to mint data, about 53.5 mil­lion ounces of gold in Kruger­rands have been sold since the first mint and more than U$21.5 bil­lion of for­eign cur­rency rev­enue gen­er­ated.

Kruger­rands are le­gal ten­der in South Africa as they are is­sued un­der the author­ity of the re­serve bank. As such, South Africans can con­vert be­tween the lo­cal cur­rency, the rand, and Kruger­rands.

As is so of­ten the case with gold-re­lated prod­ucts, the Kruger­rand ben­e­fits from times of un­cer­tainty. At home, the in­creas­ingly racially charged pol­i­tics in South Africa has led to raised de­mand from peo­ple want­ing a pick-up-and-go store of wealth. In­ter­na­tional events rang­ing from the emer­gence of ISIS to Brexit have in­vestors look­ing at eas­ily move­able money.

“The value of gold as an in­vest­ment is be­com­ing ev­er­more ap­par­ent and many peo­ple are look­ing to ac­tu­ally save in gold,” says Mr Pa­tel “It fol­lows then that the Kruger­rand, as a premier gold in­vest­ment ve­hi­cle, will re­ceive a fair por­tion of global de­mand.”

There have been at­tempts to repli­cate the Kruger­rand’s suc­cess – with sugges­tions that a plat­inum and even sil­ver ver­sion be pro­duced. While com­mem­o­ra­tive ver­sions of the coin in both these met­als have been minted in lim­ited num­bers for the 50th an­niver­sary of the Kruger­rand, the re­serve bank be­lieves there is too lit­tle de­mand for the con­cept to take hold per­ma­nently. The re­serve bank ex­pects de­mand for plat­inum coins to be no more than 50,000 ounces a year – less than 5 per cent of the gold ver­sion. That is be­cause plat­inum, also re­garded as a pre­cious metal, is pri­mar­ily used in in­dus­trial ap­pli­ca­tions, such as cat­alytic con­vert­ers. Gold’s only real at­tribute is its rar­ity and it sel­dom finds it­self sul­lied with be­ing a use­ful base com­mod­ity.

“The Kruger­rand con­tains one full troy ounce of gold,” says Hyl­ton Davies, the man­ag­ing di­rec­tor of SA Bul­lion, a Cape Town­based dealer. “Phys­i­cal gold does not change over time but cur­ren­cies do.”

Mr Davies says that since the Bret­ton Woods Ac­cord was signed in 1944, gold has been priced in US dol­lars. Fol­low­ing this, global cur­ren­cies were ref­er­enced against the dol­lar to mea­sure their own value.

But in 1971, the US aban­doned the gold stan­dard and in nearly half a cen­tury since, the dol­lar has de­clined in value, as mea­sured by its loss of buy­ing power against gold. Bul­lion cost about US$31 per ounce in 1971; it cur­rently trading at around $1,266, Mr Davies says.

Tech­ni­cally, the Kruger­rand does con­tain some cop­per to strengthen it for wear-re­sis­tance as gold on its own is ex­cep­tion­ally soft. But the guar­an­tee of each 1 ounce coin con­tain­ing 22 carats of gold is what gives it its un­der­ly­ing value.

“This trend will con­tinue into the fu­ture as the US be­comes an ev­er­more in­debted na­tion, Mr Davies says. “Two thou­sand years ago an ounce of gold fed a fam­ily for a month. It does so to­day and will do so into the fu­ture.”

As is so of­ten the case with gold-re­lated prod­ucts, the Kruger­rand ben­e­fits from times of un­cer­tainty

Si­mon Daw­son / Bloomberg

A half ounce, 22 carat Kruger­rand gold coin with the danc­ing spring­bok. Dur­ing South Africa’s apartheid years it was used to smug­gle wealth out.

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