International bullion history: Precious metals basics

The South African Krugerrand was the first king of bullion coins
By , Coin World
Published : 05/13/15
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The Republic of South Africa in 1967 struck 50,065 pieces of a coin called the “Krugerrand,” which features the likeness of Paulus Kruger, a South African statesman. The .917 fine gold Kruger­rand has a gross weight of 33.9 grams, having other metals alloyed with the gold. The Krugerrand contains a full ounce of gold.

Through 1969, South Africa struck fewer than 50,000 pieces annually. In 1970, the mintage jumped to 242,000, including for the first time 10,000 Proof versions. From 1971 to 1973, Krugerrand mintages hovered around half a million pieces, with fewer than 10,000 Proofs produced annually.

In 1974, the mintage for the bullion coin jumped to 3,180,075 pieces. This jump, which was to be sustained for the next decade, is attributable in large part to a single act—the Aug. 14, 1974, signing by President Gerald Ford of legislation lifting a 40-year ban on the ownership of gold by United States citizens, effective Dec. 31.

MORE: CoinWorld.com's precious metals basics

During the 1980s, the world economy and political conditions influenced the demand for gold bullion coins. 

Intergold, as the International Gold Corp. was known in the marketplace until its reorganization in 1986 into the Gold Information Center, was the marketing arm of the South African Chamber of Mines, the semi-official consortium responsible for distribution of the Krugerrand.

Intergold established offices worldwide with the goal of educating the investing public about gold in general, bullion coins especially and Krugerrands specifically. The measure of Intergold’s success can be seen in that during the early 1980s, the Krugerrand commanded as much as 80 percent of the world’s gold bullion coin market.

But two factors in 1984 and 1985, beyond Intergold’s influence, combined to bring down the Krugerrand as the undisputed king of bullion coins. First, the price of gold stayed relatively flat and many investors shied away from tangibles. Second, and perhaps most devastatingly, the Krugerrand became identified as a symbol of South Africa’s apartheid policy of racial discrimination.

It was perhaps inevitable that, when no fewer than 10 pieces of legislation introduced in the U.S. Congress in 1985 called for some restriction on the importation of Krugerrands into the United States, Pres­ident Reagan signed an executive order banning the import of Krugerrands effective Oct. 11, 1985. No restrictions were placed on Krugerrands already trading within the United States.

However, the death knell had sounded. By late 1985 and early 1986, nearly every major market for the Krugerrand had been affected by government bans or banking agreements. Krugerrands were still traded by bullion coin investors, but the net effect of the prolonged debate about the morality of South Africa’s policies and the destabilizing effect of months of doubt severely dulled the coin’s sheen. The Royal Canadian Mint, which had introduced its Maple Leaf .9999 fine gold bullion coin in 1979, was ready to grab the throne. 

In 1984, despite growing pressures again­­st South Africa, the Krugerrand still held about two-thirds of the gold bullion coin market worldwide. By early 1986, that distinction belonged to the Maple Leaf.

Sales of American Eagle gold bullion coins began in October 1986 and the American Eagle quickly became the world’s leading gold coin. The British Britannia, Australian Nugget and other coins soon followed into the market. Some analysts predicted a 10-million-ounce-per-year market for gold bullion coins. However, they neglected to consider other changes in the financial markets. 

By the end of the 1980s, the Canadian Maple Leaf had regained market dominance from the American Eagle, in large part because of demand for the pure gold Maple Leaf in the markets of Hong Kong and Japan. There the price of gold was low because of the extraordinary strength of the local currencies. But at the same time, North American and European demand for gold bullion coins declined because of the lack of inflation in the U.S. economy and the higher returns available from equity investments. As a result, overall sales of gold bullion coins in the latter part of the 1980s declined.

Market makers responded to this decline by repositioning bullion coins as both a bullion coin and a numismatic coin. In 1990, the Australian Nugget was reintroduced as the Kangaroo Nugget and its mintage was limited. The Chinese Panda was similarly marketed with limited mintages. Canada and the United States both began to rely on their Proof issues to supplement their regular marketing programs. The Kruger­rand was relaunched in the United States in October 1999 with coins dated 2000. Officials of Rand Refinery Ltd., the company that issues the bullion version of the Krugerrand, said the relaunch of the coin in the United States was due to a surge in demand for gold bullion.

Silver bullion coins enjoy continued success. The American Eagle silver bullion coin, a 1-ounce pure silver dollar, is one of the world’s most popular silver coins. The governments of Australia, Austria, Canada, China and Mexico issue similar coins. Demand for these affordable coins continues unabated, in part because the silver bullion coins are less expensive than gold bullion coins. Silver investment demand is centered in North America, and because of the coins’ low cost in comparison to gold and platinum, a large gift market has developed, though retailers entering the second decade of the 21st century reported some resistance from casual buyers as the price of silver leapt well beyond $20 an ounce, even surpassing $48.

The above is an excerpt from the eighth edition of the  Coin World Almanac , published by Amos Media Company in 2011.

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