How to Buy Your First Krugerrand

What a Krugerrand is

The Krugerrand is a South African gold bullion coin, first issued in 1967. It is struck from 22-carat gold, an alloy of gold and copper. The copper makes the coin harder wearing than pure gold and gives it a slightly warmer colour than some other bullion coins.

Krugerrands are legal tender in South Africa, but they carry no face value. Their value tracks the gold price, which is why they are treated as bullion coins rather than as money you would spend. They are widely recognised by dealers in South Africa and abroad, which helps when you later want to sell.

Some people hold gold to diversify their savings, while others buy a Krugerrand as a gift or a keepsake. Whatever the reason, it helps to understand exactly what you are paying for before you buy.

Sizes and fine-gold content

The gold Krugerrand is made in four sizes. The 1 oz coin contains one troy ounce of fine gold, which is about 31.1 grams. Fractional coins contain 1/2, 1/4 and 1/10 of a troy ounce of fine gold. Because the coins are 22-carat, each one weighs slightly more than the fine gold it contains, the difference being copper.

A 1 oz silver Krugerrand is also produced. Silver behaves differently from gold in price and in tax treatment, so treat it as a separate decision.

When you compare sizes, look at the price per unit of fine gold rather than the price per coin. Smaller coins usually cost more per gram of gold, because minting and handling costs are spread over less metal. They can make a first purchase more affordable and allow you to sell part of a holding later, while the 1 oz coin usually gives you more gold for the same outlay.

Knox offers gold Krugerrands in 1 oz, 1/2 oz, 1/4 oz and 1/10 oz sizes, as well as the 1 oz silver Krugerrand.

New and mixed-year coins

Dealers usually offer gold Krugerrands either as current-year coins or as mixed-year coins.

• Current-year (new) coins are struck in the present year and are usually in uncirculated condition, often in protective packaging.
• Mixed-year coins are earlier issues from various years, typically bought back from the market. They contain the same fine gold as a new coin but may show light handling marks, and you do not choose the year you receive.

Mixed-year coins often carry a smaller premium over the gold price than new coins, which is why some buyers prefer them. Others prefer new coins for gifts or for their condition. The gold content is the same either way, and dealers generally base buy-back offers mainly on gold content and condition.

Proof coins and limited editions are a different product. They are priced partly on collector demand, so their premium and resale value can behave very differently from ordinary bullion coins.

Spot price, premium and the price you pay

The spot price is the current market price of gold. Precious-metal benchmark prices are set in US dollars per troy ounce, so the rand price of gold moves with both the gold price and the rand-dollar exchange rate. A weaker rand can raise the rand gold price even when the dollar price has not moved, and the reverse also applies.

A dealer's selling price is the value of the fine gold at spot plus a premium. The premium covers costs such as minting, distribution, handling, insurance and the dealer's margin, and it varies by size, year and availability. The dealer's buy-back price is what it will pay you for the same coin, and it is lower than its selling price. The gap between the two is called the spread.

Because prices move during the day, a quote is usually valid only for a short period or until payment is confirmed. Ask how long a quote stands and at what point the price is fixed.

Knox sets its Krugerrand prices twice each business day, on a morning (AM) price and an afternoon (PM) price.

A quoted price is valid only within the AM or PM pricing window in which it is given. To secure it, proof of payment must reach your Knox sales representative before that window closes; otherwise the price may change. Coins are only released once the funds have cleared, and if payment is not made in time a new quote is issued and you are liable for, or refunded, the difference.

VAT and tax

Gold Krugerrands are always zero-rated for VAT in South Africa as gold coins issued by the South African Reserve Bank, while silver bullion is generally standard-rated. Treatment depends on the product and the facts, so check the SARS guidance or ask a registered tax practitioner. Selling gold later may have capital gains tax or income tax consequences depending on your circumstances, and rates and thresholds can change at each Budget.

Choosing where to buy

Krugerrands are sold by bullion dealers, some coin dealers and some banks and vault companies. Whoever you buy from, a few signs suggest a dealer you can deal with comfortably:

• it publishes or quotes both a selling price and a buy-back price, so you can see the spread
• it trades from permanent premises you can visit
• it issues a proper tax invoice for every purchase
• it explains how prices, payment and delivery work without pressuring you to decide
• it is willing to buy back the coins it sells, on terms it can explain

Private sales through classifieds or social media are harder to verify. If you buy that way, the risks of counterfeit coins, payment fraud and unsafe meetings are much higher, and you will not have a dealer invoice to support a later sale.

Identity checks and payment

Reputable dealers verify the identity of buyers and keep records of transactions as part of their compliance obligations. Expect to provide your South African ID or valid passport, and possibly proof of address (dated within the last 3 months), particularly for larger purchases.

Individuals need a copy of their ID or passport and proof of residential address dated within the last 3 months (such as a utility bill). Companies need their registration documents, VAT number if registered, and ID and proof of address for directors and shareholders holding more than 25%. Trusts need the letters of authority and trust deed, with ID and proof of address for trustees and beneficiaries. Knox may also ask for an income tax number and, for bullion purchases, a source-of-funds declaration.

Most purchases are paid by electronic transfer. The dealer normally confirms that payment has cleared before releasing coins, and if the price was not locked, the final price may depend on when payment is received. Be cautious of anyone who asks you to pay into a personal account, pressures you to pay quickly or offers coins well below the going market price.

Knox accepts EFT, cash and credit card. A 2% handling fee applies to cash payments and a 3% fee to credit-card payments, and coins are released only once EFT funds have cleared. Bullion prices quoted include VAT.

Collection, delivery and storage

Once payment is confirmed, you usually choose between three options:

• Collection. You collect the coins in person, normally with identification. Plan how you will carry them home discreetly, and avoid discussing the purchase in public or on social media.
• Delivery. Secure delivery saves a trip, but ask which areas are served, who carries the risk in transit, how the parcel is insured, whether a signature is needed and what happens if nobody is home.
• Storage. You can keep coins at home in a suitable safe, in a safe deposit box or in a custody arrangement offered by a dealer or vault. Each option differs in cost, access and insurance. Household policies may limit cover for coins and bullion kept at home unless they are specified, so tell your insurer.

Collection is by appointment only during office hours. You must bring a valid ID or passport and proof of residence; if someone collects on your behalf, Knox needs your written instruction and power of attorney, and that person's ID. The coins are tested in front of you and you sign a collection form.

Knox remains responsible for your purchase until it is handed over to you, either by the courier on delivery or at the facility on collection. Liability transfers to you at that handover.

However you store them, handle coins by the edges, keep them in their capsules or packaging and do not clean them. Scratches and cleaning marks can reduce what a buyer will pay later.

Selling back later

Before you buy, ask how the dealer's buy-back works, because the buy-back price determines what you receive if you sell. Useful questions include whether the dealer buys back the coins it sells, how its buy-back price is set, whether condition or packaging affects the offer, which documents you will need and how payment is made.

Knox's buy-back prices are based on the live international spot price, converted to rand. Krugerrands are bought at Knox's morning (AM) or afternoon (PM) price, and the final offer is confirmed after the coins or items have been inspected and tested.

Keep in mind that, because of the spread, selling soon after buying usually returns less than you paid, unless the rand gold price has risen enough in the meantime to cover the difference. Buyers will also test coins before making a final offer, which is another reason to keep your invoice and original packaging.

Keeping good records

Keep a simple file for each purchase:

• the tax invoice, showing the dealer, date, product, quantity, price and VAT treatment
• proof of payment
• any certificate, packaging or capsule that came with the coins
• a note of where the coins are stored and who knows about them
• for any later sale, the buy-back documentation and proof of payment

Good records help when you sell, when you work out any tax on disposal, when you claim on insurance and when an executor has to deal with your estate. Keep copies separate from the coins, so that losing one does not mean losing both, and make sure someone you trust knows where to find them.

Risks to weigh before you buy

• Price risk. The gold price can fall as well as rise, and so can the rand. Past performance is not a reliable indicator of future returns, and future prices are not guaranteed.
• Cost risk. The premium and the spread mean you start behind the market and need the price to rise before you break even.
• No income. A coin does not pay interest or dividends, and storage and insurance can add ongoing costs.
• Liquidity. Krugerrands are widely traded, but buy-back prices and payment timing depend on the dealer and market conditions.
• Security. Physical gold has to be kept safely, and the way you store it affects both your exposure and your insurance.
• Counterfeit risk. Fake coins exist. Buying from an established dealer and keeping your invoice reduces this risk, and coins are usually tested when you sell.

Gold is not suitable for everyone, and how much to hold, if any, depends on your circumstances. Consider speaking to a qualified financial adviser before making investment decisions.

Questions to ask before you buy

Use this checklist when you request a quote:

• Which sizes are in stock, and are they current-year or mixed-year coins?
• What is the price per coin, and what does that work out to per gram of fine gold?
• How long is the quote valid, and when is the price fixed?
• Which identity documents do you need from me?
• Which payment methods do you accept, and when are the coins released?
• Can I collect, and if I choose delivery, who carries the risk in transit and how is it insured?
• Do you offer storage, and on what terms?
• Do you buy back the coins you sell, and how is your buy-back price set?
• What will my invoice show, including the VAT treatment?

Key takeaways

• A Krugerrand's value follows the gold price and the rand exchange rate, not a face value.
• Compare sizes on the price per gram of fine gold, because smaller coins usually carry a higher premium.
• Mixed-year and new coins contain the same fine gold and differ mainly in condition and premium.
• The gap between a dealer's selling and buy-back prices means a quick resale usually returns less than you paid.
• Plan collection, delivery and storage before you pay, and keep your invoice and records separate from the coins.
• Gold prices can fall, and whether to hold gold is a personal decision that may warrant independent advice.