Is a Krugerrand coin a good investment?

krugerrand coin

Economic instability

With the global economy in tatters and simmering tensions in Korea and the Middle East, gold is still very much on the radar of investors. The press has played a huge role in creating awareness of gold as a safe haven in these turbulent times. If most people are asked which coins to buy though, they will be stumped.

The Krugerrand coin is one of those coins which most people, even my grandmother, have heard of and this is for good reason. For many it represents one of the best choices of gold in which to invest your hard earned money.

A South African coin first minted in 1967, the intention was to lure global investment into PHYS01_Animated_Gif_3_MPUbuying gold coins from South Africa’s rich gold reserves. Up until recently the Republic was the number one producer of gold and has only just been overtaken by the Chinese powerhouse.

To appeal to the investment market it was the first coin to contain exactly 1oz of pure gold, ensuring a straightforward marketing proposition compared to the likes of a Sovereign which contains 0.2354oz. Interestingly this fixed gold weight rather than a fixed face value (like most other bullion coins) meant that the Krugerrand coin represented a convenient store of wealth regardless of inflationary levels.

Krugerrand coin most common globally

Despite no face value, the coin is legal tender in it’s home country and is therefore minted in a durable alloy mix. Its overall gold content is 22carat or 91.67% pure as the gold is alloyed with copper to provide resilience and maintain its integrity. This is one of its major selling points now.  With approximately 50 million in circulation it represents one of the most active secondary markets in gold coins and a vast majority of the Krugerrands we see of 30 or 40 years old are still in fantastic condition.

Indeed due to the huge number in circulation and its global recognition, the depth of the Krugerrand’s liquidity is only matched by that of the British Sovereign, a coin which has built up its liquidity over many more years. There are more Krugerrands in circulation than all the other gold bullion coins combined.  As an investment into a physical asset this is very important. Just like when buying and selling a house, it is not only the price you manage to purchase the property at, but also the sale price which will determine your profit. If you buy a house for a great price but its on a main road and appeals to a very niche market, then it is more difficult to sell and the eventual sale price will inevitably be affected. The same goes for gold. Buy a Krugerrand and you’ll be able to sell the coin easily at any time, maximising your chances of securing a good price.

Incredibly by 1980 the Krugerrand coin accounted for 90% of the gold coin market. It’s a telling recognition of its success that it has spawned so many other copycats worldwide including the Canadian Mapleleaf in 1979, the Australian Nugget in 1981, the American Eagle in 1986 and the UK Britannia in 1987.

So the Krugerrand is a very liquid coin, easy to buy and sell and it maintains its condition well. But how does it’s price compare to other 1oz bullion coins? From what we see at Physical Gold Ltd, the Krugerrand offers amongst the best value of ANY 1oz gold coin. Due to its resilience to scratches I’d recommend buying second hand coins rather than the most recently minted. Like a new car’s premium it’s almost always better value to buy a ‘nearly new’ version. Brand new Krugerrands can be 3-5% more expensive. I’d also try to steer clear of the smaller half, quarter and 1/10th ounce versions as premiums rise with each smaller coin. I’d also avoid Proof versions of the coin. Although pretty, I’m not convinced you’ll receive the same premium that you paid for the coin when you come to sell. Your best bet is to stick with the better value bullion version.

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The only potentail drawback I see for UK investors as that of Capital Gains Tax. Like a majority of other assets, any profits on Krugerrands have to be declared and are liable for tax of up to 28% if you breach the modest thresholds. Now this may not be an issue if you only buy a handful of Krugerrands, have no other assets to breach your tax-free threshold or, sin of all sins, decide not to declare the sale to HMRC.

However for those playing by the book who invest £10k or more into gold coins the last thing you’ll want to do is give almost a third of your profits back in tax. For this reason, we always prefer mixing Krugerrands with a portfolio of coins such as the UK tax free coins – The Sovereign and Britannia.   This way a shrewd investor can dispose of these assets strategically so they never pay any tax at all!

Is a Krugerrand a wise investment? You bet!

Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

4 thoughts on “Is a Krugerrand coin a good investment?

  1. Stuart Wellbelove says:

    I am a little confused, Reading your account regarding Krugerrand how do they represent a better buy than Sovereigns if you have to pay 25% tax when you come to sell? or have I read the information wrong

    • admin says:

      Hi Stuart
      You are only liable for Capital Gains Tax when you make more than £10,200 profit in any given tax year. On the whole UK tax free coins such as Sovereigns are a good bet if you anticipate investing an amount into gold which could produce those sort of profits. If you invest a very modest amount, then tax may not be an issue. I love both Krugerrands and Sovereigns as they are the best value coins (price wise) and have the deepest second hand markets. The ideal portfolio has a mix of these sort of coins.
      Regards
      Dan

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