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Demand for Krugerrands is through the roof

Boosted by a strong gold price and quest for diversification.
Interest in gold is rising across the globe as confidence in paper currencies declines. Image: Chris Ratcliffe, Bloomberg

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.

Read: Zimbabwe gold mines lure offshore investor despite economic ruin

“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.

Read: Harmony to start share sale to fund AngloGold deal

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.”

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The real reason is that the FED can’t print the hell out of gold.

Always there as the money lenders big conundrum.

Soon the name “Krugerrands” will have to be “decolonised” as well. Yesterday Cecil John Rhodes’ statue had its head cut off.

It must so be tiresome to have to dress, behave and pretend to be colonised/westernised/modernised each day.

“Madibarands” should be more appropriate, don’t you think?

no

Just leave it as Kruger Rands …. has its place in History!

Regarding the Rhodes statue … so easy to destroy, so hard to actually build. Winnie and the box of matches syndrome…

Yes. And the students who gets Rhodes scholarships are in on this chopping off of heads.

It would be interesting to know who is buying these Kruger rands.

Surely not the ANC or members of the ANC. Totally against their idiologies.

The current leadership don’t plan for tomorrow… So it’s wabenzi investments all the way.

Ahhh thought as much, thanks for the confirmation.

Savvy cash earners who are tired of all the BS in SA, tired of exorbitant bank deposit fees and tired of paying tax.

They are the ones walking into coin dealers and buying coins cash.

My daughter is in grade 12 now. While the family was making a chicken curry potjie on the fire on Sunday, we discussed monetary theory and the Cantillon Effect. Well, the discussion started with the 9/11 event and the War on Terror, and I made the point that to understand what happened there, we have to understand the Bretton Woods agreement that fell apart, leading to the Nixon Shock, that led to the PetroDollar agreement with Saudi Arabia.

My point was that the chain of events that led to the 9/11 event started at the Bretton Woods agreement. Gold is the central theme of this story. To cut a long story short – the 9/11 event became inevitable when the USA defaulted on their gold-denominated foreign debt in 1971. The aftershocks of the “Nixon Shock” actually caused the implosion the Twin Towers 30 years later. Incidentally, The reason why Trump did not act against the Saudi Royal Family after the murder of Jamal Khashoggi, can also be found in the same folder.

The agreement with Saudi Arabia that gave birth to the petrodollar system is the mechanism that links the Nixon Shock to the 9/11 event. A glass of red wine enabled this epiphany for me.

The point of this story? Never underestimate the value of gold as the ultimate currency.

I feel terrible. There are folks who discuss monetary policy while making a potjie. We just swill beer and chew the fat and there is usually a fight at the end. Or we used to ….

: )

(always insightful as always, Sensei)

My exact thoughts, did’t believe that was possible..
But we must keep trying….

did the math the other day-
I bought a rental property in 2004- R 360 000 , or at the time 142 kruger rands. ( USD 62000)

Current value, 16 years later – R 1550000 , 51 Kruger Rand. \(USD 93 300)
(142 KR value now R 4.260Mil)
Holding cost, rental income etc excluded in calculations.

Not sure that I follow your argument, Sensei. I understood that there were no agreements made since Brettonwood. I do agree that gold is the ultimate store of value that we have at present. Money is merely a means of exchange and has lost its other classical attributes (ie a store of value, etc )that I learnt about in Economics. The one theory seldom discussed is the velocity of money through the system at any given time and how it effects the value of money. It certainly has no effect on the value of gold!

Thank you.

To understand the current international geopolitical situation, we have to see the petrodollar system in the right perspective. After defaulting on its obligations with the Nixon Shock, the USA was in desperate need to find a reason for the Bretton Woods partners to keep on using the dollar as a reserve currency. The Bretton Woods agreement meant that nations lent money to the USA at rates determined by the USA. Foreigners financed the American Dream. Without reserve currency status, this “exorbitant privilege” will come to an end. The Americans would have to work for their money like everyone else. The steady stream of cheap credit will dry up.

Some of the brightest minds, the best strategic thinkers, invented this brilliant idea that shaped geopolitics for the next 50 years. They backed the dollar with another commodity that is in high demand, namely oil. In 1973 the Americans agreed with Saudi Arabia, as the largest oil producer and the leader of OPEC, to sell oil in terms of dollars and to buy US bonds with the proceeds. In exchange, the US would protect the Kingdom against military invasion and supply them with arms. The US “sweetened” the deal for the Saudis with a thinly veiled threat that Israel might want to attack if the Saudis didn’t sign the deal. Now, the dollar was backed with oil, and nations had to buy dollars before they could buy oil. The US has successfully ensured the ongoing demand for US Treasuries. This brilliant move saved the American Dream. This agreement is much more significant than the Bretton Woods agreement.

There is a downside to the deal, a cost, a price to pay. The USA has to enforce the use of its new fiat currency because “fiat” means “by decree”. A fiat currency has value, only because the government says so, and because they are willing, and able, to enforce it with their military might. Now it becomes clear why the USA had no alternative but to enforce the use of the dollar when Irak, Lybia, Syria and Iran wanted to sell their oil, not in terms of the depreciating dollar, but in terms of gold. The “Axis of Evil” was branded as terrorists when they wanted a fair price in a stable currency for their oil.

The USA merely needed a reason to motivate the electorate to back the dollar with military intervention. This is where 9/11 comes into the picture. This was the price to ensure the value of the dollar, the cost of the American Dream. As we know today, this event was a successful motivating force to enforce the use of the fiat dollar.

Nostra, the velocity of money is like the shock-absorbers in your car. When you hit the speedbump at great speed, they absorb the shock. Devaluation of the currency elicits a similar reaction from the velocity of money. The velocity of Money = GDP ÷ Money Supply. Therefore, during a deflationary period marked by a contraction in the GDP, even if the money supply stayed constant, the velocity of money would decline. The velocity of money does not drive the economy like your shocks do not drive your car. It reacts to how the car is driven.

I hear you but there are some Nations that save more than others. So money is saved and not spent on consumables so I believe there is a human element to this. If economics was pure maths we would be able to solve the money problems of the World. Unfortunately humans are unpredictable especially the politicians.

Hi Sensei

“The agreement with Saudi Arabia that gave birth to the petrodollar system is the mechanism that links the Nixon Shock to the 9/11 event. A glass of red wine enabled this epiphany for me”

That is one hell of an epiphany, did not know red wine could do that. Lol. Seriously though, your explanation makes sense, just as the the perfect collapse of the three towers does not make sense. *

However, my interest in what you write is where are we now? If the petro dollar has been the commodity backing the fiat US$ what now that oil recently became worthless and is a commodity in serious decline? Please have another glass of red wine (on me) and complete the circle.

* (“Our study found that the fires in WTC 7 could not have caused the collapse. The UAF study was funded by Architects & Engineers for 9/11 Truth (AE911Truth), a nonprofit representing more than 3,000 architects and engineers who have signed the organization’s petition calling upon Congress to open a new investigation into the destruction of the three World Trade Center towers on 9/11)

Hi Foshan

Thank you for your comment. I have to ration myself with the red wine during these times of prohibition, so I am running out of ideas…☺

The rapid decline in the value of oil, combined with lockdown measures, did have a major impact on the dollar. The way I see it is that this was a deflationary shock that caused a “run on the dollar”, becoming evident as an 8% fluctuation in the Dollar Index. The Fed had to open swap lines with many countries to take the US Treasuries held by those countries as collateral for a direct injection of dollars. South Africa also benefitted from this liquidity. The Fed protected the US treasury market from collapse. By creating dollar liquidity for foreign countries, the Fed ensured that those countries did not have to sell their US Treasuries to support their own bond markets. The Fed created liquidity for other countries to stabilise the US bond market. This is how serious this shock was. It shook the foundations of the global financial system and almost caused another financial crisis.

The US Federal Reserve has become the reserve bank, the lender of last resort, for international Central Banks.

U still have wine at yr place!!!??

I am also wondering,

with the US Fed injecting liquidity into their markets, increasing money supply, resulting in devaluation of their currency(DXI dropping), resulting in US inflation ( your money is worth less and assuming their is US citizens with jobs able to spend their cash, buy houses) … with all this in mind, and if this is correct, does this imply that South Africa can see deflation?

Dollar weakening means Rand strengthening .. or the US have hyper inflation and we have hyper deflation – if we adhere to tight monetary policies

Ultimately I see inflation as a make believe system to pretend that there is growth in the system, the GDP rises by ~2% per annum but in reality money is actually less 2% worth than what it was a year ago

You are correct insofar as GDP growth is mostly a function of inflation or devaluation of the currency.

When the dollar weakens against the dollar index, is does not necessarily imply that the rand will strengthen against the dollar. It is most likely that the rand will depreciate against that basket of currencies at a faster rate that the dollar.

However, Emerging Markets tend to outperform Developed Market during times of dollar weakness and I believe that we are at the beginning of a decade of dollar weakness, or a weakening dollar at least.

A strong dollar hurts American companies and tax revenue. It is in their interest to manufacture a weaker dollar. It is in our interest also.

Let me trigger some long suffering gold bulls.As per Gold Fields Feb results “Gold Fields results saw them mine a record 16 tonnes of gold or 2.2 MILLION ounces in 2019”. Hahahaha, gold is absolutely NOT rare. When the kids start shilling gold on TikTOk and Instagram like Tesla or crypto then you buy and make money. Gold keeps your money power, NOT make money. Gold gains(lol) are WEAK.

Since 2000 (20 years) Gold up 542%, DJIA up 153%

More interesting is to consider the price since 1970 when the US went off the gold standard,

1970: Gold $35 – DJIA 764

2020 – now: Gold $1800 up approx 5000%
DJIA: 26000 up approx 3500%

So Gold has outperformed the DJIA

Murky Waters, I am waiting in anticipation for #CTexecutive to reply to your comment. Both of you cannot be correct, but I know, the facts are on your side.

That makes me wonder – what did he base his observation on? – Oh! Now I get it – he is a crypto bull. He sees more scarcity value in something that can be created by a geek with a keyboard, than in something for which a mining engineer has to risk his life for.

Quote your sources, please.

Me thinks you cannot do financial analysis.

Gold’s return over the period as per your assertions equals 8.5% – pedestrian. Use a financial calculator to work it out.

Period = n = 50
PV = 35
FV = 1800
i = 8.2%

Over 25 years, Gold compared to the JSE All-Share index (Alsi)

Alsi

Period = n = 25
PV = 4926 @ July 1995
FV = 56230 @ today 15 July 2020 11:00 AM
i = 10.23% Price only, no dividends taken into account.

KRUGER RANDS

Period = n = 25
PV = 653 @ July 1995
FV = 1810 @ today 15 July 2020 11:00 AM
i = 4.16%

So, over the last 25 years the Alsi returned 10.23% price appreciation and KR’s 4.16%. Factor dividends into account, at least 1.8% after Div Tax of 20%, and equities far outstrip gold.

Go figure.

Murky Waters-what your figures are saying is that the 1$ today is worth 51 times less than in 1970 because an ounce of gold is still exactly that. So you actually had zero return. ??

Ooooops.

Finger error on my previous post. I misquoted the KR price @ July 1995.

KRUGER RANDS

Period = n = 25
PV = 385 @ July 1995
FV = 1810 @ today 15 July 2020 11:00 AM
i = 6.39%

The return is 6.39%

Wish that comments could be edited.

As with all these things it seems a no-brainer when the current end-point is so much higher than the starting point. In reality it is much more nuanced. There have been long periods where gold has underperformed. If your starting point has been 1980, then gold would have posted negative returns in USD upto about 2007.

@Quiddatis – way off. Gold trumps the JSE

RAND return in KR (1g)

Period = n = 25
PV = 1409 @ July 1995
FV = 30493 @ July 2020
i = 13.09%

No performance or annual fees either

Quidditas
You request for sources but you do not heed that which you request from others. Not a problem though.

When you say the JSE(Alsi) trumps gold(kr), you are correct in the sense that your calculations for gold are quoted in US dollars(giving you the 6.39%) but the rand conversion of the same figures are contrary to your conclusion. Rand conversion of the gold calculation is indeed 13.09% and that trumps the JSE ALSI(10.23%).
Gold’s relative return to the JSE(Alsi) = 2.86%

Since the JSE ALSI is a South African index, it is only prudent to use Rands throughout, for comparative reasons.

Quotes used to arrive to my conclusion are sourced from Investing.com. However the Jse ALSI quote was soured from iress.

Gone Awol, sharp mind. Your only mistake that caused confusion was the unit of gold used. Prices you quoted were for a troy ounce(31.1g) and not a 1g. Great shot on the jse < gold.

Don’t forget… When u purchase a KR, u pay a premium above the spot price of gold/$. And, when u sell, there is premium above the spot gold/$ price. Have u calculated these extras in??

I think Professor De Vos and his Lunatic statements on Inheritance being done away and all “donated” &/or Stolen by the State is also an influence . Once you have KR,s no one needs to know about it : You can give them to your kids anytime and you have a Rand hedge when Exchange control is reintroduced .

I like , only problem is they can be stolen. In SA that is a high probability. Whats the transaction cost? probably also very high.

True Beeshaas: BUT currently everything you have is being stolen: The ANC simply magically produce a new Law making it “legal” theft :Pensions next :
So Id rather have my Assets out of the clutches of the ANC : I,ll take my chances safeguarding them !!

People buying things because FOMO?

Are we approaching investing haphazardly now?

Like when preparing your long-term Investments the current disruptions were not anticipated? Changing cycles were never a thing?

Do not forget about silver. For almost 4000 years together with gold being judged by mankind as having value and an indication of wealth and power. Silver price is quietly getting ready for a massive breakout after lagging gold for a long period now. Contrarian players in USA positioning themselves for this. Only real beneficiary amongst South African miners will be Harmony Gold via their 50:50 ownership with Newcrest Mining of the Hidden Valley gold and silver asset in Papua New Guinea. Precious metals miners is a good space to be in. Increasing demand can only be good for the bottom lines of the supply side.

Truth be told the Zuma years multiplied all the post 1994 investment by zero. Everything is valueless as it was pre-1994. COVID-19 Zips our day zero… Everything must be measured after the pandemic has peaked. Everything else is immaterial for this country. COVID-19 is the grand equalizer.

Gobblegook Boombang !!!

There’s always gold proponents and antagonists. Owning gold as a (small) part of your portfolio makes sense as a store of value & capital appreciation, even if you don’t earn interest & dividends on it. Same with having cash in a foreign bank account….hardly any interest, but you have longterm currency upside against the ZAR. And a store of value.

….but after this massive historic gold run, if you enter the market now….you (could possibly) face a long gold downturn/slump for many years, before you’ll break even again. No one has any crystal ball.

Coming to COST of owning gold, usually boils down to “paper” gold like holding it in ETF’s (e.g. ABSA New Gold & STD Bank 1Vest Gold), or shares in gold counters where cost of buying & selling is low (and quick)…OR…owning physical gold, e.g. Krugerrand coins.

The latter physical holding of gold does come at a cost & inconvenience: there’s handling fees, and you deal with a sales-reps that you had to ‘haggle’ with (like when it comes to trade-in your well-looked after used vehicle…there always a reason put forward why your car value is now so unexpectedly low..)

Then owning it comes with Insurance cost or safe-deposit box cost (…and then you have the famed FNB & STD Bank safe-deposit box robberies, where the banks typically shy away from refunding customers).

And is a safe at home really a perfect place to store gold? If you are unfortunate enough to experience a home-invasion/robbery, you WILL open the safe, when gun is pointed to a beloved family member you hold dear 🙁 …unless if it’s aimed at your mother-in-law *lol* …sorry, I could not resist that one 😉

Nobody beats a gold bull at picking dates for comparisons

I can play that game too so to take TIMING out let’s compare the total return of somebody that each month bought $1000 worth of Apple shares vs $1000 of gold for the last 30 years.

Ah but I chose Apple. The other side picked ZAR instead of JPY….

Maybe things have changed since I started investing, but aren’t you supposed to buy low and sell high? Does it make sense to buy gold while there is high demand?

End of comments.

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