Investment in Krugerrands growing
First National Bank (FNB) reports that investors worldwide are showing a positive response to investing in gold Krugerrands. The partnership with Rand Merchant Bank Commodities Division, presented FNB with an opportunity to sell Krugerrand coins to its customers through their online banking platform. Since its launch in 2011, more than 1.5 t of coins have been sold to clients.
“The interest in Krugerrands as an investment has been massive. Coin sales have been great, with one of the biggest spikes in sales in August 2011, when coins to the value of R55-million were sold in one month. In April this year, when the gold price started declining, Krugerrands to the value of R67-million were sold,” FNB Share Investing CEO Gusta Binikos states.
She tells Mining Weekly that investing in gold is a good long-term investment decision and cannot be compared with any other investment. “Investing in gold must be part of a healthy diversification investment strategy. People should not invest in gold with money needed for daily living expenses or school fees, but should rather plan gold investment as one portion of a healthy long-term investment portfolio,” says Binikos.
Krugerrands can be bought through the FNB Share Builder and Share Investor account through FNB online banking and is attractive to clients across all markets. For investors who cannot afford to buy a full ounce, smaller denominations are available, being a tenth of an ounce, a quarter ounce, or half an ounce.
“The most popular purchase has been the 1/10 oz, especially among students and the lower income group, who are aware of the investment value of owning any portion of the resource, while the full one ounce has also been most popular among some older investors,” explains Binikos.
FNB offers investors the added service of storing Krugerrands at Rand Refinery, in Germiston, Gauteng, since the cost of gold personal insurance is high. FNB also safely delivers the coins to investors, should they wish to take possession of it, at their own expense.
Krugerrands have always been sought after, since they offer the average person an opportunity to possess tangible gold. It is illegal to own a gold bar in South Africa – people can only own a gold ‘biscuit’, which is a portion of gold, but even this must be registered. “The idea behind the creation and selling of the Krugerrand is to enable people to own physical gold,” she adds.
Analysts believe that the current general state of the gold industry means that strikes at gold mines will increase the demand for gold. Binikos says there is no real correlation between the price of gold and when clients invest in it. There was a spike in Krugerrand sales in April 2013 when the gold price dropped.
In August 2011, people invested heavily in gold when the price increased. “People notice that there will always be value in gold and that buying gold is a good investment in the long term,” she says. Investing in gold is not the same as investing in stocks on the stock exchange. When stocks are high, people opt to sell before the value of the stocks decrease, but with gold, the value will on average always be high because it is a currency.
Gold is the only natural resource that is still used in the world as currency. The devaluation of currency in notes is making gold a more attractive means of investment. “Some people are investing in gold to hedge themselves against paper money fraud that happens globally. All paper money is fiat money – it is not backed by gold.
People want security and gold is an alternative to fiat money,” Binikos states. She adds that another reason some people invest in gold is because of its aesthetic beauty and appeal and the emotional attachment of owning a rare and desirable resource.
“The Krugerrand is aesthetically unique, as it comprises 11/12 gold and 1/12 copper, giving it a pinkish colour because of the copper, whereas 24 ct gold is very pliable and can, over time, lose its shape and value,” Binikos adds. The Krugerrand is the most bought coin in the world, with 65-million ounces in circulation. Other collector coins have not had the same success.
“People who want to invest in gold need to do so long term, be aware of all the curves and ride out the waves in the market. Only then will they notice the true value of their investment,” she notes. FNB does not sell other collector coins because they have no fixed price and are not liquid.
The first gold coins were minted in Lydia, currently known as Turkey, in 610 BC, and has since been an attractive medium of exchange. Before Richard Nixon scrapped the dollar’s con- vertibility into gold forty years ago, most of the world’s currencies correlated with on the gold standard, meaning that a unit of currency could be exchanged by central banks for a fixed weight of gold.
“The American money notes, which now read ‘In God We Trust’ used to read ‘In Gold We Trust’ showing how valuable gold has been throughout the ages,” Binikos concludes.
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