Investing in Gold With Krugerrands

Few modern coins are as iconic as the Krugerrand. The composition and value of this South African series of gold bullion coins is recognized around the world, and for good reason: the Krugerrand was the very first modern gold bullion coin series to be issued by a government. The popularity of these unique gold coins contributed to the creation of the Canadian Gold Maple Leaf, the American Gold Eagle, the Austrian Gold Philharmoniker, and other modern gold bullion coin lines.

Brief history of the Krugerrand

While the Krugerrand is internationally recognized and traded today, such was not always the case. In 1961, the white-minority government of the Union of South Africa withdrew from the British Commonwealth and declared the creation of a formally independent Republic of South Africa. This republic was to be a highly segregated one – while British-ruled South Africa had not treated the non-white people of the country equally or fairly, the new government was to take this treatment to a greater extreme. This set of policies, known informally as apartheid, had officially been in practice since the 1940s, and the newly independent Afrikaner-dominated government of 1961 began taking harsher and more violent measures to crush the widespread opposition to these oppressive laws.

In the midst of the apartheid years, the South African government turned to the country’s natural resources to improve its economy. South Africa, to this day, holds a great wealth of diamonds, gold, and other ores. Looking for a way to effectively market South African gold to the rest of the world, the government began to issue a series of 22-karat gold coins for both circulation and private collection. This coin was named the Krugerrand, a portmanteau of the name of Paul Kruger, former president of the Transvaal Republic, and the rand, the currency of South Africa since 1961. Appropriately, the portrait of Paul Kruger occupies the obverse of the coin, while the reverse features a springbok, an antelope native to South Africa.
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The production of the one troy ounce gold Krugerrand began in 1967, and South Africa accordingly began marketing the new coin to the rest of the world. Because of its government’s oppressive apartheid policies, South African products were banned in many parts of the world, but these trade restrictions did not keep the Krugerrand from capturing 90% of the international gold coin market by the 1980s. The Krugerrand’s dominance in spite of its stigma as a South African product can be chalked up to the fact that it was the first gold bullion coin made to be traded both domestically and internationally – the market had essentially not existed until the Krugerrand created it.

Throughout the 1970s and 1980s, other countries put their own gold coins on the market to compete with the Krugerrand. The United States, Canada, Austria, Mexico, and Australia were, and still are, South Africa’s principle competitors in the gold coin market. After 1994, when apartheid officially ended, the trade embargoes against South Africa were dropped and the Krugerrand gained in popularity. Many gold investors who were formerly leery of the coin because of its associations with the apartheid government now began buying it. Today, the Krugerrand is a potent symbol of South Africa’s natural wealth and prosperity.

Krugerrand specifications and denominations

Like American Gold Eagles, Krugerrands are made of 22-karat (or 91.67% pure) gold. Why is the Krugerrand made of a gold alloy when many other bullion coins, such as the Gold Maple Leaf, are made of .999 and above fine gold? Pure gold is a soft metal that wears down very easily with use. The Krugerrand’s 22-karat gold-copper alloy makes it harder and more resistant to wear.

The “classic” Krugerrand is a one troy ounce coin, meaning that it contains one troy ounce of gold. Because it is alloyed with copper, however, the coin’s actual weight is 1.09 troy ounces. At 32.77 mm in diameter, the Krugerrand is slightly larger than a U.S. half dollar.
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The one ounce Krugerrand’s size and high gold content may put it out of reach for many potential buyers. Nevertheless, precious metals investors on limited budgets can also buy Krugerrand coins. Fractional Krugerrands have been produced since 1980 in one-half, one-fourth, and one-tenth troy ounce varieties. Being fractional coins, these naturally sell at a higher premium than do one ounce Krugerrands, but they are well worth buying for investors who want Krugerrand coins but can’t afford to drop over a thousand dollars on a single coin purchase.

A warning for American investors

The Krugerrand is not currently eligible for inclusion as part of a gold IRA. If you’re planning on establishing an IRA account, consider this fact when making gold purchases.

The Krugerrand is a unique coin series with a fascinating and, at times, a controversial history. Whether you’re a gold investor looking to protect your hard-earned wealth with precious metals or you’re a coin collector looking for a new series of gold bullion issues to start gathering, you can’t go wrong with the Krugerrand.

If you are interested in learning about buying gold check out Buying Gold Guide and also US Gold.

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