Thursday, November 27th, 2014 MST

Buying Cheap Gold Coins: Krugerands

Considering that gold is trading north of $600, one has to ask how it is possible to buy cheap gold coins. After all, in only late 2005 gold traded at $460, and in 2001 gold traded below $300.

Low Premium Krugerand Gold Coins

What we are talking about is buying low-premium gold bullion coins, favorites of seasoned gold bullion investors. Premiums are also called markups. All gold bullion coins sell at premiums over spot.

In the U.S. gold market, the 1-oz American Gold Eagles are the standard by which all modern gold bullion coins are measured. Gold Eagles have been the best-selling gold bullion coins in the United States since they were introduced more than two decades ago.

Other gold bullion coins are commonly quoted at premiums or discounts to Gold Eagles. The venerable Krugerand is a good example. Currently, Krugerands are selling at $13 to $15 discounts to Gold Eagles. Other cheap gold coins will be discussed later in this piece.

Low Premium Krugerands

After Americans regained the “right” to own gold bullion on December 31, 1974, the Republic of South Africa launched what turned out to be a tremendously successful campaign to sell Krugerands into the U.S. market. The Krugerand was the first gold bullion coin to contain exactly one ounce of gold bullion. According to some sources, fifty million Krugerands were sold, and Americans had many reasons to buy gold.

In the 1970s, inflation ran rampant, with rates hitting 13%. Additionally, the prime rate topped 21%, and the Cold War was still hot, with the Russians rolling into Afghanistan. Noted weekly magazines ran articles about the proximity of Afghanistan to the Middle Eastern oil fields. Of the fifty million Krugerands sold, probably half were sold in the United States, possibly more.

The South Africans for the most part had the U.S. market to themselves. The Canadian Maple Leafs would not be introduced until 1979, and the American Gold Eagles not until late 1986. It was in 1985, however, that the South Africans ran into a major roadblock.

The Krugerand Ban

The U.S. Congress banned the importation of Krugerands, as a slap on the hand of white-ruled South Africa. (The much larger sales of gold bullion for the U.S. jewelry market were not banned.) The Krugerand ban lasted ten years, until 1995, after Nelson Mandela had been elected South Africa’s first black President.

By then, American Gold Eagles had become the dominant gold bullion coins in the United States, and they remain the most popular gold bullion coins in the U.S. (However, the U.S. Mint’s new Buffalo Gold Coins, introduced in June 2006, out-sold Gold Eagles in 2006. In 2007, we will learn if the Gold Buffs are to become the best selling gold bullion coins in the U.S.)

The introduction of the 1-oz gold Krugerand was a brilliant move for the South Africans, coming at just the right time. However, that was then, and this is now.

Krugerands No Longer Promoted

Today, Krugerands are no longer promoted, and the cost of manufacture has fallen out of their price, and they sell at small premiums over spot gold, a premium that simply reflects gold in a useful, recognized form.

Other recognized low premium gold bullion coins include the Austrian 100 Coronas and the Mexican 50 Pesos. Austrian 100 Coronas contain .9802 ounce of gold, and the Mexican 50 Pesos are the largest readily-available
gold bullion coins on the market, containing 1.2057 ounce of gold.

The Austrian 100 Coronas and the Mexican 50 Pesos were never promoted as the South Africans promoted the Krugerands and as the U.S. Mint promotes its Gold Eagles. The Austrian 100 Coronas and the Mexican 50 Pesos are restrikes, officially issued reproductions of formerly circulating coins.

When these restrikes were being minted, there were buyers waiting for them, as gold then was held in higher esteem than it is today. Americans were not among those waiting buyers, however, because most restrikes were minted during the time that Americans could not legally buy gold bullion in any form.

Krugerands: best known cheap gold coins

Investors wanting cheap gold cannot go wrong picking one of these three cheap gold coins. Krugerands, however, are better known than either the Austrian 100 Coronas or the Mexican 50 Pesos. Consequently, the 100 Coronas and the 50 Pesos are often available at slightly smaller premiums than Krugerands.

Although the 100 Coronas and the 50 Pesos are not always available in large quantities, investors wanting low premium gold coins should inquire about the 100 Coronas and the 50 Pesos when looking to buy cheap gold.