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The Krugerrand is a gold coin from South Africa with no face value, only precious metal content. It was created to allow private ownership of gold bullion, which was previously illegal. Its controversial history during apartheid has led to other gold coins emerging as competitors.
Defining a Krugerrand is fairly straightforward, but understanding its importance may require a crash course in world economics and international politics.
A Krugerrand is a gold coin minted by the Republic of South Africa, but it would never be used to buy groceries or gas. Unlike other gold coins, the Krugerrand has no real face value, apart from its precious metal content. On the front of the coin is a profile of Paul Kruger, one of the first Presidents of the Republic of South Africa. The Afrikaans words Suid Afrika appear, along with the English South Africa. The back of a Krugerrand features a male gazelle, a national symbol of South Africa. There is also a date stamped in two sections on either side of the springbok image. A Krugerrand has jagged edges.
The original Krugerrand was designed to hold precisely one troy ounce of 22-karat gold, approximately 33 grams. The actual weight is just over 1 troy ounce because a small amount of copper, about 1/12 of the total weight, is added to make the coin more resistant to damage. Because a Krugerrand is considered legal tender, it does not have to be melted down into an ingot on resale. In 1980, three smaller sizes of Krugerrands were minted, weighing 1/2 ounce, 1/4 ounce, and 1/10 ounce.
This is where politics and economics come into play. The United States and other countries used to back their currencies with gold-equivalent deposits, an economic practice known as the gold standard. Over time, the US treasury stopped using gold as currency backing, relying more on control of circulation. The government still had large gold reserves, but private individuals had to rely on the stability of the national economy. Private ownership of gold in the form of bricks or ingots was strictly monitored or even prohibited by law.
Meanwhile, the Republic of South Africa had discovered a huge vein of gold and was eager to trade it to the world. As private ownership of gold bullion was illegal, the South African government decided to produce a gold coin and grant it “legal tender” status. It was not illegal for US citizens to buy foreign coins, no matter what metals were used. The South African Krugerrand could sell for a mere 5% above the current gold price. The South African government would benefit from sales of its gold and investors would have a hedge against economic collapse. Due to its special content, a Krugerrand can easily be settled in currency in most countries.
The main concern with the Krugerrand sales is the controversial history of South Africa. The white minority, mainly from European stocks, virtually kept the black majority under their control for decades through a segregation plan called apartheid. The Krugerrand was first minted at a time when black workers in diamond and gold mines were treated very poorly, although racial conditions in South Africa have improved in recent years. Purchasing Krugerrands during the days of active apartheid could be seen as tacit approval of the practice.
Now other gold coins have emerged to challenge the Krugerrand, made with 24-karat gold and no copper alloy. It is much easier to buy gold bullion as an investment today than it was in the 1960s. It is estimated that more than 54 million Krugerrands have been sold worldwide since 1967, but its days as the only legitimate source of private investment gold They are over.
Smart Asset.
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