What makes the price of Krugerrands go up and down?

2015-01-21 18:48

Krugerrand prices are driven largely by three variables:

First is the dollar price of gold – as the price of gold internationally, in dollar terms, goes up, the value of Krugerrands will do the same.

To be more precise, every 1% increase in gold price internationally, will translate into roughly the same for Krugerrand.

Thus, if inflation erodes the value of international currencies (like in the 1980s when dollar and pound inflation was running at double digit numbers), owners of Krugerrand are protected.

Secondly, the rate of exchange between the rand and US dollar. Any depreciation in the rand increases the rand price of Krugerrands. By illustration – if the rand depreciates against the dollar (assuming an unchanged gold price), a Krugerrand’s value would similarly increase. This is very important – by owning Krugerrands, you protect the dollar purchase power of your money.

Finally, by virtue of it being in minted form, a Krugerrand trades at a premium to the intrinsic gold value. This is called the numismatic premium. When buying coins online from FNB, this is normally quoted at 4%, meaning that the total purchase price equals 104% of the rand gold price than prevailing.

When selling one’s coin, the premium is recovered. The numismatic premium results in a slightly geared exposure to the gold price, meaning owning a one ounce Krugerrand actually gives one exposure to 1.04 ounces of gold.

From the above it is clear that an investor in Krugerrands gains protection against a weakening of the rand against the dollar.

Furthermore, it provides exposure to the dollar price of gold. And, due to the numismatic premium, the value of a Krugerrand is slightly above that of the contained bullion. The SARB provides a guaranteed buy-back on all Krugerrands at bullion value. As such Krugerrands should never trade below the rand value of the contained gold; for a one ounce coin, that means the dollar gold price, multiplied by the dollar-rand spot exchange rate.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.