Krugerrands Definition

Krugerrands Investment

What Exactly Are Krugerrands?

Krugerrands are gold coins issued by the Republic of South Africa in 1967 to promote South African gold on worldwide markets and to allow citizens to possess gold. Krugerrands are one of the most often traded gold coins on the global market.

The coins are legal currency in South Africa, although they have never been awarded a rand (ZAR) value. Krugerrands were created with the intention of deriving their worth solely from the price of gold at the moment they are exchanged. The price of Krugerrands fluctuates in tandem with the price of gold.

Important Takeaways:

  • Krugerrands are gold coins created in South Africa in 1967.
  • At the top of the gold market in 1980, Krugerrands accounted for 90% of the world’s gold-coin market.
  • Despite South Africa’s declining gold output, Krugerrands remain popular among gold investors today.

Krugerrands Are Gold Coins

The picture of Paul Kruger, president of the South African Republic from 1883 to 1900, appears on the front of a Krugerrand coin. The coin’s name is a combination of Paul Kruger’s surname and the word “rand,” South Africa’s national currency. The back of the coin depicts a galloping springbok antelope, which is a national emblem of South Africa. Paul Kruger was in government when Durban Deep, one of the world’s most lucrative mines, was established in 1896. He was also president during the Witwatersrand Gold Rush, which resulted in the establishment of Johannesburg, South Africa’s biggest city.

The Johannesburg Stock Exchange (JSE) trades Krugerrands in the same manner that it trades any other listed equities market instrument, through a well-regulated secondary market, with stated values based on the weight of the coins. The South African Reserve Bank (SARB) issues new Krugerrands, which may be redeemed. The Krugerrand was produced to be more resistant to wear than the 24-karat gold coins used for adornment medals because of its legal tender status in South Africa. The Krugerrand is constructed of 22-carat gold, which is 91.67 percent gold and 8.33 percent copper alloy.

Krugerrand History

When Krugerrands were first struck in 1967, the United States did not allow its residents to possess gold bullion, but it did allow foreign coin ownership, therefore the Krugerrand could be purchased and sold in the United States. As public awareness of South Africa’s apartheid—the country’s system of racial segregation—grew, so did interest in the Krugerrand.

Several Western nations prohibited the import of Krugerrands throughout the 1970s and 1980s as part of economic sanctions imposed on South Africa due to apartheid. Krugerrand imports were prohibited in the United States in 1985. These economic restrictions were lifted in the West in 1994 when South Africa abolished apartheid. However, many US investors were unaware that the prohibition had been abolished, resulting in low amounts of Krugerrand imports into the US.

South Africa was the world’s top gold producer in 1970, accounting for more than 75% of global gold reserves. Throughout the 1970s, Krugerrands soon became the gold investor’s preferred option. By 1980, at the peak of the gold market, the Krugerrand overwhelmingly dominated other gold investments, accounting for 90% of the world’s gold-coin market.

Current State of Affairs

Krugerrand manufacture ceased in 1994, after the end of apartheid. South Africa’s gold output has since recovered, although it has never recovered to the levels seen in the 1970s and 1980s. In 2016, South Africa’s gold production has decreased by 85 percent since 1980, and the country produced barely 6% of the world’s gold.

Krugerrands continue to struggle today. As seen in the graph below, South Africa’s gold output decreased by more than 30% between December 2018 and January 2019, extending the country’s worst contractionary streak since the 2007–08 financial crisis.

Purchasing Krugerrands

Krugerrands continue to be a popular investment for gold investors due to their high value and tiny size, which facilitates storage. Krugerrands appeal to both professional and individual investors seeking to invest directly in gold bullion, hedge against the US dollar, or diversify their portfolios.

Investors continue to purchase gold due to its shown long-term worth. Many investors see gold as a secure investment that will preserve its value even in the event of an economic catastrophe. Possessing a tangible asset appeals to certain investors, who may place a higher premium on real coins or bars than on paper assets.

If you are considering purchasing Krugerrands, you need to have safe storage space for them. Additionally, you should be suspicious of fraudsters, seek a reliable gold dealer, and familiarize yourself with your state’s tax rules, which may include a sales tax on gold. The following are some of the advantages of investing in gold that some investors may find appealing:

  • Gold is a very liquid commodity.
  • Your investment is in actual gold and is not based on a gold mine’s performance.
  • Gold has historically provided positive returns and has risen in value as a non-renewable natural resource. 
  • Due to gold’s low to negative correlation with other asset classes, it is an excellent instrument for portfolio diversification

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