Financial services provider Rand Mer-chant Bank (RMB) commodities product structurer Ebrahim Patel tells Mining Weekly that economic changes have had an impact on the viability of the Krugerrand.

“A Krugerrand derives its value primarily from the internationally quoted price of gold in dollars, multiplied by the rand:dollar exchange rate. The value of a Krugerrand is, therefore, influenced by factors which have an effect on the international gold price and the rand:dollar exchange rate,” says Patel.

He explains that this exchange rate is driven by other factors relating to demand for the rand and that an investor seeking to gain exposure to foreign exchange movements will buy currency or related instruments.
The economic conditions of the last five years, following the financial crisis, have created certain broad macroeconomic realities. Patel says these amount to “slower economic growth, the easing of monetary policy in the US and other countries and a climate of business uncertainty”.

“These realities have led investors to invest in gold as a safe-haven asset. One of the favoured ways to do this has been to buy gold in the form of coins and bars. Krugerrands constitute the most widely circulated and successful gold coin in history,” notes Patel.

“The Krugerrand trades across the globe – from China to Germany, from Los Angeles to Paris – and constitutes the most accepted and recognised vehicle to gain gold exposure,” says Patel.
The value of Krugerrands has moved in line with the combined effect of the gold price and the rand:dollar exchange rate. Since 2001, the price of a Krugerrand has appreciated more than 500%.

“Despite the reversal of about 25% in the gold price for the calendar year, Krugerrands have retraced only about 10%, owing to the weakening of the rand against the dollar,” Patel concludes.

Krugerrands, which were named after the South African President and nature conservationist, Paul Kruger, have been legal tender worldwide since the first coin was struck on July 3, 1967.