Demand for Kruggerands, the top-selling gold coin in the world, is surging as buyers across the globe scramble for one of the few safe havens in times of economic distress.
Global demand for gold coins – including competitors such as the Canadian Maple Leaf, the Australian Kangaroo, the Austrian Philharmonic and the American Eagle – is up as much as 50% since last year as investors globally are looking for safe-haven assets.
Gold’s recent breach of the $1 800 per ounce barrier will likely further stimulate demand for coins. The coronavirus has given extra impetus to demand, in part because of the economic devastation of economic lockdowns around the world. The supply of gold has been crimped in part by temporary shutdowns of mines in countries like SA, resulting in interrupted physical supply chains across the globe.
SA gold mines are now getting back to normal production after shutting down for a month at the start of the Covid-19 lockdown, which has started to ease the supply bottleneck.
Gold coin mints have also started to return to something approaching normal production after either shutting down or reducing output to mitigate risk at the start of the pandemic.
And this at a time when gold coin demand was in full throttle.
Krugerrands are managed by Prestige Bullion, a joint venture between the SA Mint and Rand Refinery, which is owned by the major mining houses. Since 1967 more than 52 million ounces of Krugerrands have been produced and sold.
Prestige Bullion MD Richard Collocott says demand for Krugerrands has been growing at roughly 50% a year since 2015. This was around the time Des van Rooyen was (briefly) appointed finance minister by then-president Jacob Zuma, but the real impetus for demand was a desire among SA and overseas buyers for risk diversification.
“Krugerrand demand has been robust for the last several years, but we saw a spike in demand in February and March this year when the extent of the Covid-19 pandemic became apparent,” says Collocott. “We were hit with a perfect storm of surging demand and capacity limitations on manufacturing as a result of Covid-19 related risk management interventions.
“Demand was exceptional in February and March at the start of the pandemic, but has now returned to a ‘new normal’ which is still in a very high range.”
The gold is refined by Rand Refinery and cut into ‘blanks’ before being struck by South African Mint.
The Krugerrand has had a potted history, having fallen into relative disuse during the apartheid years, slipping at one point to the fifth most traded gold coin in the world. Things took a dramatic turn in the early 2000s, and especially after the 2008 financial crisis, when it was again the world’s top-selling gold coin. By 2016 it accounted for more than a quarter of all gold coins sold around the world.
Rand Refinery in Germiston was established by the then Chamber of Mines in 1920 to add value to locally produced gold.
It has since become one of the largest single-site precious metals refining and smelting complexes in the world, and recently completed a major expansion programme to gear up for the increase in demand.
Most refiners globally were operating a reduced capacity for a period during the Covid-19 outbreak (Swiss refineries were briefly shut altogether), resulting in constricted physical supply chains which added 5-10% premiums for gold coins over the spot price of gold.
Krugerrands are considered legal tender in SA, so are zero-rated for value-added tax.
SA Bullion, a distributor of Krugerrands, has reported a surge in demand for coins this year, as well as minted bars and managed gold investments. Founder Hilton Davies says the interest in gold is rising across the globe as confidence in paper currencies declines.
“Gold has always done well in times of economic uncertainty and is regarded as a long-term hedge against currency debasement and inflation,” he says. “Over the last 20 years gold has appreciated at about 15% a year in rand terms, and we see this trend continuing.
“That explains why gold coins are in such high demand right now.”