Go for gold in 2011
Up close with the Krugerrand
By Merle O’Brien

Hilton Davies, founder and chairman of SA Bullion, has the view that investors should view Krugerrands as money - a form of currency - similar to the way they view cash in the bank. “They will find gold is a serious competitor to cash in the bank. In good times, gold is a commodity and in bad times gold is used as a currency in an investment portfolio.”

The South African Krugerrand was introduced into the market in 1970 and is now the world’s most widely circulated gold coin. SA Bullion believes that in today’s investment market, it is prudent for investors to hold 5 or 10 percent of one’s total holdings in gold bullion Krugerrands.

Davies says that we’re going into a generational period of bad times for which gold is the ultimate hard currency. The ‘bad times’ are a period of severe credit contraction following an enormous credit expansion where solvency becomes the key issue. In such times, asset prices, banking systems and government finances come under pressure and this ultimately results in deteriorating currencies. 

Since 2000, the price of gold has risen steadily from USD 290.20 an ounce in 2000 to a recent high of USD 1409.80 – earning investors a return of approximately 17% per annum annualised for the last 10 years, despite market turbulence in other investment classes. 

SA Bullion announced at the end of 2010, a 27.5 percent reduction in the cost of investing in one-ounce gold Kruggerand coins with immediate effect, from 23 November 2010. SA Bullion advises that this has been facilitated by successful client uptake and volume growth in the last two years of trading and anticipated market demand ahead for physical gold which has offered investors a return of approximately 17% per annum annualised for the last 10 years. The total return on gold over the last 10 years has been 367.84% in ZAR and 410.19% in US$.

Says Davies, “The transaction charges for investing in The BullionGold Facility have been materially reduced since Rand Refinery and SA Bullion both substantially reduced their upfront charges to provide an even more compelling investment into physical gold, using the most widely circulated gold coin in the world, the one-ounce Kruggerrand.”

Rand Refinery is the world's largest gold refinery and acts as agent for the Reserve Bank in Krugerrand sales. SA Bullion is South Africa's only licensed investment manager that operates under a special dispensation of the South African Reserve Bank and is exclusively focused on physical gold. The BullionGold Facility, South Africa's first physical gold bullion investment product, is SA Bullion's flagship private-client gold bullion investment service where clients invest in freshly-minted Krugerrands.

According to Clint O’Brien, SA Bullion’s director of retail business, “These transaction charges make the investment product very competitive in the investment management industry. It comes at a time when investors are looking for a complete solution to owning physical gold that provides a cost-effective entry and exit strategy with storage and insurance facilities.”

The Krugerrand
According to SA Bullion, the most cost-effective and secure way for serious investors to trade in gold is via the one-ounce bullion Krugerrand:
- It is exempt from Value Added Tax (VAT)
- It carries only a small premium on the value of the gold content versus far higher premiums paid numismatic or collectible coins
- Unlike shares, there is no counterparty risk in holding Krugerrands since the title is individually held 
- It is legal tender in South Africa which means it is underwritten by the SA Reserve Bank
- It is traded internationally with a steady market of buyers and sellers
- The price is easily monitored and set daily using an international standard
- The Krugerrand is minted in 22 carat quality gold for more durability than 24 carat gold

How to buy Krugerrands
SA Bullion provides a specialised gold investment product called The BullionGold Facility which enables investors to make lump-sum or recurring monthly premiums into a call account. The BullionGold Facility provides a 24-hour turnkey solution for investors to buy, vault, insure, sell or take delivery of their gold worldwide.

The BullionGold Facility is available within South Africa through accredited Financial Advisors, internationally though SA Bullion alliance partners or directly from SA Bullion. For further information on how to invest in Krugerrands, visit www.sabullion.co.za

Other ways to invest in gold
As the world’s fourth largest producer of gold, South Africa offers the market a number of ways to get into gold via:
- The BullionGold Facility which enables physical, title ownership of one ounce gold Krugerrands
- ABSA NewGold Exchange Traded Fund (ETF) which gives investors exposure to the gold price via shares in the gold market 
- Gold bullion bars which attracts 14% VAT
- Gold for jewelry in the form of wire, granules, plate, bangle washers etc
- Industrial gold for technology in aerospace, biomedical, environmental, fuel cells as well as nanotechnology   
- Stock-exchange listed shares in gold mining companies