Gold Krugerrands As an Investment

In 1967, the government of South Africa minted the gold krugerrand to increase the marketing of South African gold. Although the krugerrand is considered as legal currency in South Africa, it is rarely used for that purpose. Instead, it has become a favorite of coin collectors all over the world, known as "medal coins." This was the first coin to be valued at the monetary value of gold, or the current rate of gold prices. For example, a U.S. silver dollar is worth exactly one dollar unless it is unusual in some way that makes it more valuable to collectors. The krugerrand was originally a one-ounce piece of 22 carat gold with no monetary value imprinted on it; its value is based upon the market gold price that frequently fluctuates. Today krugerrands are made in a variety of weights, including half-ounce, quarter-ounce and one-tenth ounce.

Coin dealers and collectors often obtain krugerrands through estate sales. The price that the dealer or collector will pay depends upon the current gold market price on that particular day. For example, imagine that a family man invests in buying 100 krugerrands when the gold prices are 0 per ounce. When the man dies ten years later, the value of the krugerrands will be based upon gold prices at that time. Like any investment, buying gold krugerrands is never a "sure thing." When the man dies, gold may be priced at 0 per ounce, meaning that the family will have lost money on the investment. However, gold prices may well be 0 per ounce, giving the family a sizeable return on the investment if they decide to sell the krugerrands. In cases like this, probate attorneys recommend that surviving heirs consult a coin dealer about the fluctuation of gold prices; knowing when to sell and when to hang on is a matter that requires professional consultation.

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If you buy gold krugerrands as an investment, keep in mind that these coins are 22 carat gold; an extremely high grade in quality. Pure gold, at 24 carats, is too soft to be minted so it is "cut" with various amounts of metal to make it hard enough to mint. Novice investors often make the mistake of comparing the gold prices for jewelry items made from 18, 14, or 12 carat gold with the gold price or market value of the 22 carat krugerrand. All gold is not created equal!

The South African krugerrand was the prototype model for other one-ounce coins like the Canadian Gold Maple Leaf, the Australian Nugget, the Mexican Gold Peso, and the United States Golden Eagle. Since these coins are not as widely available as investments as the krugerrand is, they are sometimes subjects of counterfeiting. Have a coin consultant investigate the current gold price, the authenticity of the coin, and the coin's carat weight.

Gold Krugerrands As an Investment

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Thinking of Buying Gold? Krugerrands

If you're thinking of buying gold, it's very possible that your first thought is to buy Krugerrands, and if you do that you would be okay because only in rare instances are there are better forms of gold for investing purposes. Of the best known gold bullion coins, the Krugerrand nearly always carries lowest premium. Additionally, the Krugerrand enjoy a very active market, which in important when it comes time to sell.

Although first minted in South Africa in 1967, the Krugerrand was introduced in the United States in 1975 immediately after the federal government lifted the ban on Americans owning gold bullion. The Krugerrand was an immediate hit as investors sought to protect themselves from the price inflation caused by the "bread and butter" economic policies stemming from the Vietnam War.

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The Krugerrand remained the dominate gold bullion coin until 1985 when Congress banned its importation because of South Africa's apartheid, a political system that enabled the whites to rule the country. From 1974 through 1985, South Africa sold some 42 million Krugerrands worldwide and possibly 25 million in the United States.

With the ban, the importation of Krugerrands ceased, but an active secondary market for the coins continued through out the ban and continues to this day. Krugerrands are bought and sold daily, in small quantities at coin shops and in huge quantities among gold bullion coin dealers.

When the ban was lifted in 1995, after the election of Nelson Mandela as South Africa's first black president, the South Africans made an attempt to again market the Krugerrand in the United States. However, by that time the American Gold Eagle coin, which the U.S. Mint introduced in 1986, had become the popular gold bullion coin, and the South African effort was futile. Americans could buy the Gold Eagles at the same price as Krugerrands, and Gold Eagles became their bullion coins of preference.

During the height Financial Crisis of 2008, demand for all forms of gold was so great that Krugerrands were again imported into the United States, and today new, 2009-dated Krugerrands sometimes are available. However, most trading in Krugerrands is in the secondary market for coins dated 1974-1984.

Although the Krugerrand comes in four sizes, 1-oz, ½-oz, ¼-oz and 1/10-oz, the 1-oz coin is the more popular. The 1-oz coin contains exactly 1-oz of gold but weighs slightly more than one ounce because it is 22-karat (91.67%) gold. Precisely, the Krugerrand is an alloy of 31.1 grams of gold and 2.83 grams of copper. Rarely are fractional-ounce Krugerrands available.

© Bill Haynes 2009

Thinking of Buying Gold? Krugerrands

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