Krugerrand sees Covid’s silver and gold lining
● The Krugerrand, first introduced 54 years ago, is experiencing its best export sales in about 30 years as demand for safe-haven assets such as gold and silver shows no sign of abating.
Not only are the coins — first introduced in 1967 by the then Chamber of Mines to add value to South African gold — reaping the benefit of a supercycle commodities boom that has run for more than 18 years, but they are gaining lift from global uncertainty about the effects of the pandemic and economic growth prospects.
The biggest markets for the 22ct 1oz coins managed by Prestige Bullion, a joint venture between the South African Mint and Rand Refinery, include German-speaking Europe and the US, which together account for 85% of the global coin market.
These coins, whose value is linked to the gold price and currently retail at about R28,000, also contain some copper to provide durability, because gold in its pure 24ct state is a soft metal and prone to scuffing.
Pandemic’s boost for sales
Prestige Bullion, responsible for managing all South African bullion coins including the Krugerrand, also produces silver Krugerrands and “fractional” Krugerrand gold coins in one-tenth, ¼ oz and ½ oz weights.
Richard Collocott, MD of Prestige Bullion, said export sales over the past 16 months have been the highest in three decades, with the figure for the past 12 months soaring more than 80% on the previous period.
He said that, on average, foreign sales account for 500,000oz-600,000oz of Krugerrands a year.
“Since March last year, since the world began going into various versions of lockdowns, we’ve seen a significant increase in demand for traditional investment commodities.
“The Krugerrand has definitely participated in that.”
Prestige Bullion does not disclose revenue figures for Krugerrand sales, but Collocott said exports were a multibillion-rand market.
“We’ve seen very high demand because gold, and silver to a lesser degree, are seen as safe-haven assets.”
Low interest rates and uncertainty around inflation as well as political instability are helping to drive this.
“When times are good people don’t think about precious metals, but when times are not as good, with lots of uncertainty, such as we are now experiencing, the role of gold as a safe-haven currency is definitely coming into play.”
Collocott said at the heart of gold’s appeal is that it is the equivalent of cash.
“It’s a monetary metal with limited industrial uses. It has a deep history, a massive liquidity and is easily tradeable.”
He said demand for silver Krugerrands is enjoying a similar boom. While gold is trading at about $1,800/oz, the silver price is at $24/oz-$25/oz, compared with about $18/oz before the pandemic. Silver peaked at about $28/oz over the past year.
Collocott said Prestige Bullion plans to launch a platinum coin, as well as a 24ct gold coin, in the fourth quarter of the year. These would be sold under a new brand “which celebrates SA’s wildlife heritage”.
Collocott said the 24ct coin, containing no copper, will be aimed at gaining inroads into the Asian market where investors and consumers prefer 100% pure gold to the gold-alloy coins favoured in Europe.
In East Asian markets and Saudi Arabia 24ct “yellow gold” is preferred, while in India there is demand for 22ct gold jewellery alloyed with silver.
In the US, where 22ct Krugerrands are the coins of choice, a market could be developed for the new 24ct coin due to the rules governing individual retirement annuities (IRAs). These rules stipulate purity standards for gold owned in an IRA that 22ct Krugerrands don’t meet.
Collocott said the strong demand for coins should be sustainable for some time, “but I can’t put a timeline to it. A lot of bankers say we are in a commodities supercycle.” Peter Major, director of mining at Mergence Corporate Solutions, called it the “longest commodities supercycle boom I’ve ever seen, and probably in the past 130 years”.
“This boom is over 18 years long, starting in 2003. All booms eventually come down as gravity always wins in the end. But is this boom going to collapse in a heap?
“Because this is such an extended boom, maybe it’s going to come down gradually.”
Major said the Krugerrand has very good long-term potential even though it isn’t the “sexiest investment”.
“The long-term average capital appreciation of the Krugerrand has been about 13% every year,” he said.
“This is on average all through the cycles. If you bought a Krugerrand in the 1960s you’ve averaged 13.2% capital appreciation every year, and that is a reliable performance.”
Major said that when the coin’s value has dipped in the past, it has always recovered quickly.
“I don’t think it’s ever gone down two years in a row. And even then it usually makes it up in the third or fourth year.
It also appears immune to whatever the prevailing global sentiment is towards SA as an investment destination. “Whether people like SA or not is irrelevant, because they all like the Krugerrand.”
Major said demand for Krugerrands had plenty of legs.
“The world is so scared of the virus and global warming and bitcoin. There is insatiable demand for the Krugerrand.”
Sasfin Securities chief global equity strategist David Shapiro said the Krugerrand has always had strong appeal globally and there will always be conservative investors who want to hold gold.
It’s a monetary metal with a deep history, a massive liquidity and is easily tradeable Richard Collocott