How to buy Krugerrands
Angelique Ruzicka looks at how you can buy and sell Krugerrands and explains how the price of these coins are determined
St Patrick’s day may have come and gone this year, but that doesn’t mean you shouldn’t embrace the luck of the Irish and find some gold. There are many ways to invest in gold but a common way of doing this in South Africa is investing in the infamous Krugerrand.
If you have ever seen a Krugerrand, you may have noticed that the gold bullion coin does not record a face value. The reason for this is that the value of a Krugerrand is inherently linked to the value of gold and is defined by the prevailing value of this metal on the market at any given time.
If the price of gold increases, so does the price, and value, of the Krugerrand. Ideally, you should buy a Krugerrand when the price of gold is low, or when the US Dollar weakens against the Rand, however, the price lows and a favourable exchange rate will not always coincide with your available funds.
If however you want to invest in the medium to long term in the Krugerrand it’s acceptable to buy the coins on a regular basis. “Taking a bird’s eye view, one will see that the peaks and the troughs smooth out to deliver historically positive growth over time. This is evidenced by the fact that Krugerrands have approximately doubled in value every five years since their inception in 1967,” says Arno Egen, the owner of Mr Kruger a bullion specialist company based in Pretoria.
So how can you buy a Krugerrand and what should you look out for? According to Egan you should follow these steps:
- Do your research
Don’t just buy the coins from anybody. Research the background of your vendor and make sure they are approved the South African Association of Numismatic Dealers, (SAAND) and the SA Mint. “They set the standard in high-quality production; their mission stating that they create timeless value and preserve heritage through master crafted coins. The vendor that you choose should be recognised by both these bodies, thus securing the integrity of your trade and the standard of the coin purchased,” says Egan.
- Consider pricing
“The current price of a Krugerrand is directly proportional to the gold index price which is quoted in US Dollars. To calculate a valid price, convert the ZAR to the USD exchange rate and multiply that by the listed price for gold. This is often referred as to the “SPOT” price of an ounce of Gold. Add to that figure a commission which is charged by all vendors (this could be anything between 6 and 12%) and you will arrive at the price of a Krugerrand,” says Egan. For more on Mr Kruger’s pricing, click here.
- Make contact with the dealer
Contact the dealer – either by phone or by visiting the store. Krugerrands come in one-ounce and fractional denominations, so you have the choice to buy either one-tenth, one-quarter, one-half an ounce or a full one once Krugerrand. “This will depend on what suits your budget and your investment plan. Not all dealers keep stock on their premises and would need to place an order. This will impact on the timing of your coin collection,” says Egan.
You can pay by cash or you can make an electronic payment. “Most dealers will not do a card sale because of the commission charged to the vendor by the bank. Bear in mind that cash usually carries a cash-handling fee, so an electronic payment (EFT) may be more sensible. Some dealers will be able to make the trade by phone call, followed up with an EFT and a proof of payment,” points out Egan.
- Collect your Krugerrands
Go to your bullion specialist and sign documents confirming your identity in order to take ownership of your Krugerrands. You will need to supply a valid form of identification, like an ID or driver’s license if you are a South African citizen. You will receive a certificate of authentication which states the specifics of the coin and the value, which you will keep.
- Keep them in a safe place
It’s important to look after your Krugerrands properly. If you lose them or if they get stolen you could lose your savings. Many vendors offer safe custody as either a paid-for or a free service. Safety deposit boxes offer privacy and reduced personal risk, however you have to choose your vendor carefully. Just last year, Justmoney reported how some of FNB’s branches were closed as a result of thieves breaking and entering and stealing items from safety deposit boxes. FNB has since announced that it will no longer offer the service.
“Safe custody will ensure that the quality of your coin is maintained and will afford you a profitable trade in the future. When assessing your options, always consider the privacy of your personal information, as well as the privacy of any sensitive information in relation to your investment. Consider a bullion specialist with a strict code of ethics and who ensures a professional service,” adds Egan.
Gold is not the only precious metal you can invest in. You can also invest in silver. For more information, click here.