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Gold Coins - Why Krugerrands?

Gold has often provided insurance against the 'unexpected', currency devaluations, severe downturn in stocks & shares, national crises and economic uncertainties.

South African Krugerrands are a low-priced, high-quality gold bullion coin that is avidly traded throughout the world. Krugerrands remain one of the most successful of all modern bullion issues.

Gold Krugerrands were the first gold bullion coins produced in exact 1-ounce size, and sold for simply the spot gold price and a slight mark-up to cover manufacture and distribution. Here was a way for people to buy tradable quantities of gold, without having to buy big bars of gold bullion or odd-weight gold coins that you had to get out a calculator to figure out their value.

South Africa is the largest producer of gold in the world, and the Krugerrands helped the country to market the vast stores of gold coming out of the deep mines around Johannesburg. The convenience of a legal tender gold bullion coin, exactly one ounce of pure gold, guaranteed by a government Mint for weight and purity, made The Krugerrands the predominant way for individuals to buy gold bullion in the 1970's.

With the demise of gold as legal tender coins in the first half of the 20th Century, the only gold struck came to be special presentation pieces and collectors issues, not the old fashion gold-for-money's-sake gold coins as had been produced for thousands of years prior. Gold-for-gold's-sake was pretty much bullion bars, a form of gold whose ownership was restricted in the United States from 1933 to 1975. Gold coins came to mean coins of numismatic or collectors value, coins which traded for prices far in excess of their gold value.

" The South African Government changed that with the introduction of Krugerrands in 1967. Here was a coin, with legal tender status, purposefully made to trade just for its gold value and the small cost of manufacture and distribution. South Africa foresaw that gold ownership would become increasingly popular among private individuals as the U.S. dollar was no longer a fixed amount of gold.
With the weakening of the dollar, the monetary standard of the world was changing, and gold would play a growing part in those changes.

The South African Krugerrands made gold ownership simple by providing a one troy ounce unit of gold that was easy to buy and sell all over the world. Instead of odd-weight bars of gold, the market for private gold owners now had the convenience of mass-produced bullion coins.

Later, other countries followed suit and produced their own bullion coins, but not before tens of millions of ounces of gold Krugerrands were sold all over the world.

Today, the huge supply of Krugerrands on the market makes it the least expensive choice in tradable gold bullion. Although often discounted on the resale side, Krugerrands are the choice of many veteran gold buyers. "Why pay more?" they would ask, "Gold is gold."

On December 31, 1974, Congress restored Americans' right to own gold in bullion form. Previously, Americans could own only numismatic coins whose prices were determined more by the coins' condition, dates, mint marks, and rarity than by the value of their gold content. Such coins normally sell at prices many times the value of their gold content.

The restoration launched a new era in precious metals investing. Trading in restrikes of the Mexican 50 Peso and Austrian 100 Coronas bullion coins became quite popular. The introduction of South African Krugerrands to the U.S. however, laid the foundation for today's modern gold bullion coin market.

Krugerrands remain popular, and a good market exists for them. Mexican 50 Pesos and Austrian 100 Coronas bring up the rear.

Krugerrands, Gold Eagles, and Maple Leafs carry greater appeal than 50 Pesos and 100 Coronas for several reasons. First, they contain one ounce of gold. By contrast, the 50 Peso contains 37.5 grams (1.2057 ounce) and the 100 Corona .9802 ounce. Americans are more comfortable with ounces than with grams or fractional ounces.

Second, Krugerrands, Gold Eagles, and Maple Leafs have their gold contents stamped on them in English. In contrast, 50 Pesos have "37.5 Gms ORO PURO" stamped on them and the 100 Coronas do not have their gold content on them.

Other gold bullion coins include Australian Nuggets, Chinese Pandas, British Sovereigns, Austrian Philharmonics, and Hungarian 100 Koronas (sister coins to the Austrian 100 Coronas). Additionally, there are still more gold bullion coins, but they should be avoided.

The average investor should go with Krugerrands, Gold Eagles, and Maple Leafs. They are easier both to buy and to sell. Additionally, they have narrow spreads between their buying prices and their selling prices.

In 1994, Congress lifted the importation ban, and Krugerrands were again offered for sale in the U.S. By then, however, Gold Eagles and Maple Leafs had captured the gold bullion coin market in the U.S., and South Africa ceased promoting Krugerrands. Today, Krugerrands sell at prices a few dollars below Gold Eagle and Maple Leaf prices.

Just like Gold Eagles, Krugerrands come in four sizes: 1-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce. All four coins carry the same design. The 1-oz coin is by far the most popular but cannot always be found in large quantities. The fractional ounce coins are sometimes difficult to find in small quantities.

Krugerrands need to be purchased when investing in physical gold in South Africa as stated in the South African Reserve Bank Act 90 of 1989 section 34 (1)(j). These coins are linked to the gold price determined in US Dollars and the Dollar exchange rate and are sold at a small premium above the gold price.

First struck in July 1967, more than 50 million Krugerrands have been minted, making this coin internationally recognizable and one of the most successful bullion coins. Krugerrands - the most widely held bullion coins in the world - are the easiest way to own gold in South Africa and internationally. More Krugerrands have been circulated than all other gold coins combined.

Gold is trusted internationally as a unique asset, having often provided financial security and a safe haven for personal wealth, especially during periods of national economic uncertainty and crisis.

Krugerrands were first minted and issued in 1967, and have been produced every year since. They have legal tender status in South Africa, which allowed them to be imported into many, but not all, countries without import taxes, duty or VAT.

In Britain VAT was imposed on all coins, except antiques. In January 1995, this was relaxed on almost all second-hand goods, including gold coins. This means that existing privately owned coins can be traded by dealers under a "special scheme" whereby the only VAT chargeable is on the dealer's margin, which is negligible. Because VAT was still payable on any "new" coins, it remained more difficult and expensive to buy and sell large quantities of bullion coins.

Originally only one size was issued, which contained one full troy ounce (31.1035 grams) of fine gold. In 1980, three more denominations were introduced, namely a half, quarter, and tenth ounce size. The fractional sizes were issued at higher premiums to bullion dealers of 5%, 7%, and 9% respectively. The fractional coins have never been as popular as the full one ounce coins, usually only being purchased as singles, so that in practice, it would usually cost 10% to 15% premium for the half and quarter ounce, and from 20% to 50% premium for the tenth ounce, most of which seem to have been used in jewellery. Most bullion houses do not want the bother of handling small quantities of low value coins.

As the only means to legally possessing gold bullion in South Africa, the Krugerrand offers a unique way of holding one's own gold. Krugerrands can be bought from, or sold to, thousands of gold dealing companies and their branches worldwide. As the Krugerrand is so well recognized, buying and selling Krugerrands is a simple task.

Krugerrands carry only a small premium (margin) over the value of their gold content - unlike collector or numismatic coins where the value is normally dependent on their rarity and condition. The effect of this small premium (margin) would lead to a slightly more expensive investment than it would be should bullion be utilized. One should also bear in mind the fact that this margin will be payable when purchasing Krugerrands, but will also be regained when coins are sold and would therefore have no effect on the underlying value of the gold content.

As the gold price is quoted internationally in terms of troy ounces, the value of Krugerrands (which contain exactly 1 oz, 1/2 oz, 1/4 oz or 1/10 oz of pure gold) can easily be determined at any time. Kugerrands have always been legal tender coins, since their launch in 1967, under South Africa legislation. As legal tender coins, they do not need to be assayed or melted down upon resale - unlike many cast and minted gold bars.

Krugerrands are sturdy and durable. They are 22 carat - a traditional caratage of gold bullion coins designed to be handled as currency. Krugerrands are hard enough to resist normal scratching and denting - an important, practical feature, as soft 24 carat coins and bars are more easily damaged and generally require protective packaging. Krugerrands are easy to transport and store.

An important aspect to bear in mind is that coins are divisable and bullion is not. Subscribers are not simply investing in gold bullion but a prospective universal currency, already demarcated into monetary units.

Benefits of South African Krugerrands

Gold content guaranteed
Krugerrands are guaranteed as to weight and gold content by the South African government. Each coin contains 1 troy ounce of pure gold.

Lower cost of investment
Today, Krugerrands sell at prices a few dollars below Gold Eagle and Maple Leaf prices. See the premium percentages listed in the comparison tables below.

Minted in 22-karat gold
Using the durable gold standard established for gold circulating coinage more than 300 years ago, each Krugerrand is minted in 91.67% fine gold alloyed with a small amount of silver and copper added to harden and protect it against damage. Pure, 24-karat gold is actually quite soft. Adding alloy to pure gold makes it many times more durable than gold itself. However, each coin still contains its 1-ounce of pure 24-karat gold. The alloy weight is extra.

Instantly liquid
Krugerrand gold coins are easy to sell at gold market value almost anywhere in the world and anytime. Since their inception in 1979, Krugerrands were long considered to be the international standard for gold bullion investment coins.

Easy to store and transport
Gold bullion coins are compact, convenient, and easy to store or transport. We pack them securely in 3-inch tall, break-proof plastic tubes that are perfect for home safes and bank safety deposit boxes.

Better than bars and ingots
We recommend gold bullion coins like Krugerrands over gold bars and ingots because they're far easier to sell, store, and transport, and do not incur the additional costs of assaying when it is time for you to sell. With the advent of government-issue bullion coins in the last 20 years, most gold bar manufacturers have been put out of business.

Popular design
The obverse side of the coin, designed by Otto Schultz, depicts a bust of Paul Kruger, the last president of the Republic of South Africa. The reverse side, designed by Coert Steynberg, depicts the image of South African gazelle called a springbok.

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Recommende further reading:
Why invest in gold?
Comparison between of South African Krugerrands, Gold Eagles and Maple Leafs
How do I start - what do I need to do?
Questions and Answers