How Do Krugerrands Work?
The Republic of South Africa began issuing Krugerrand gold coins in 1967 to help market South African gold on global markets and to enable private gold ownership. The most frequently exchanged gold coins on the global market are Krugerrands.
Despite never having a rand (ZAR) value, the coins are considered legal tender in South Africa.
The value of Krugerrands is solely based on the current price of gold at the moment they are traded. The value of Krugerrands fluctuates along with the price of gold.
Krugerrand
Paul Kruger, who presided over the South African Republic from 1883 to 1900, is depicted on the coin’s face.
The name of the coin is a combination of Paul Kruger’s last name and the South African rand. One of South Africa’s national emblems, the springbok antelope, is depicted galloping on the back of the coin. When Durban Deep, one of the most lucrative mines in the world, was established in 1896, Paul Kruger was in office. The Witwatersrand Gold Rush, which resulted in the founding of Johannesburg, one of South Africa’s largest cities, occurred while he was president as well.
Similar to any listed equities market product, Krugerrands are traded on the Johannesburg Stock Exchange (JSE) in a well-regulated secondary market, with quoted prices based on the weight of the coins.
The South African Reserve Bank (SARB), where they can be redeemed, issues new Krugerrands.
The Krugerrand was created to be more durable to wear than the 24-karat gold coins used for adornment medals due to its legal tender status in South Africa. The Krugerrand is composed of an alloy of 8.33 percent copper and 22 karats, or 91.67 percent, gold.
The Krugerrands’ past
The United States did not allow people to hold gold bullion when the Krugerrand was first issued in 1967, but it did allow ownership of foreign coins, allowing the Krugerrand to be purchased and traded there. The Krugerrand suffered from dwindling appeal as awareness of South Africa’s apartheid—that nation’s system of racial segregation—policies expanded.
Numerous Western nations outlawed the import of Krugerrands throughout the 1970s and 1980s as part of imposed economic penalties against South Africa due to apartheid. In 1985, the importation of Krugerrands was prohibited in the US.
When South Africa ended apartheid in 1994, these economic restrictions in the West came to an end.
However, because so many American investors were unaware that the embargo had been removed, there were little Krugerrand imports into the United States.
With more than 75% of the world’s gold reserves, South Africa was the largest gold producer in the world in 1970. Krugerrands swiftly overtook other gold investment options in the 1970s. At the height of the gold market in 1980, the Krugerrand led all other gold investments, making up 90% of the global market for gold coins.
Current Situation After apartheid was abolished in 1994, the Krugerrand’s output drastically decreased. The output of gold in South Africa has since increased, but it has never reached the levels of the 1970s and 1980s, when it was at its peak. In 2016, South Africa generated barely 6% of the world’s gold, a decline of 85% since 1980 in the country’s gold production.
Krugerrands are still in trouble today. The graph below shows that between December 2018 and January 2019, South Africa’s gold production decreased by more than 30%, continuing a trend of declines that has persisted since the financial crisis of 2007–2008.
Purchasing Krugerrands
Due to their high value and convenient storage-friendly size, Krugerrands continue to be a preferred investment for gold investors. Professional and individual investors who want to directly invest in gold bullion, protect their portfolios against the U.S. dollar, or diversify their holdings are drawn to krugerrands.
Because gold’s worth has been shown to endure over time, investors continue to purchase it. Many gold investors believe that this rare metal is a secure investment that will hold its value even in the event of a global economic meltdown. Some investors find ownership of a real item appealing and may place more trust in actual coins or bars than in securities investments that simply exist on paper.
You should have a safe place to store Krugerrands if you’re interested in purchasing them. Additionally, you should watch out for con artists, look for a trustworthy gold dealer, and review the tax regulations of your state, which may impose a sales tax on gold. The following are some benefits of buying gold that some investors may find alluring:
The gold market is extremely active.
Your investment is in actual gold and is not reliant on a gold mine operating profitably.
Due to the fact that it is a non-renewable natural resource, gold has historically produced positive returns and has seen an increase in value.
Gold is a useful tool for portfolio diversification because of its low to negative correlation with other asset types.
