4. Investing in Krugerrands


China is intent on dethroning the United States as the ‘King of the World’ by arresting control of the world economy from them. This battle of the global giants has ignited the prices of all world commodities, particularly oil. It has inadvertently ‘triggered’ a powerful bull market for gold. The Chinese have also officially announced that they are going to lift their gold holding from 600 tonnes at present, to 2 500 tonnes. This will make them the world’s 5th largest holder of gold behind the United States, Germany, the International Monetary Fund (IMF) and France. The United States is the largest individual gold holder in the world with 8 133.5 tonnes, almost 70% of their country’s total assets. The big question is, that knowing the thousands of years old love affair that the Chinese have had with gold, are they set to emulate the United States and have most of their assets in gold?

Krugerrands are still the best way to hold gold in the world


The South African Krugerrand, with over 54-million in circulation, is the world’s most popular and best known gold coin. It is the easiest and most liquid form of gold to hold. The Krugerrand comes in four different sizes, namely the 1oz coin, ½ oz coin, ¼ oz coin and the 1/10 oz coin. The Krugerrand trademark is also one of the ten best known in the world. The greatest attribute of the Krugerrand is that it is instantly liquid and can be converted straight into cash anywhere in the world. Almost all banks worldwide buy Krugerrands and there is never a shortage of potential buyers.

The picture above shows you the different sizes of Krugerrand that you are able to buy 1 oz, ½ oz , ¼ oz and also 1/10 oz.
The Krugerrand on the left was based on South Africa’s first official coinage called the Krugerpond, pictured on the right and minted in 1899. The Krugerpond above also originates from South Africa and is the world’s rarest coin with a mintage of only 1. It is currently valued at US $3,000,000. To read more about South African rare coins click here

The instant liquidity of the Krugerrand is due to the fact that it is essentially one ounce of gold. To find out what the rough value of your coin is, you only have to look at the latest gold price. When buying Krugerrands, you will also need to pay a premium over and above the price of the gold. This premium enables the buyers and sellers of the Krugerrand to make a profit and also helps cover the cost of manufacturing and processing.

Just as it occurred at the beginning of the global property market boom there are more and more books being written about the bull market for gold.
The Gold chart above shows you the performance of gold (Krugerrand 1 oz) over the past 9 years. Its rise since January 2000 has been nothing short of spectacular.
Click to view daily price.
The gold bull is finally out once again after a long extended rest. Many of the world’s leading analysts at some of the largest financial institutions in the world believe that gold has entered a new extended bull market.
Krugerrands were an ingenious creation of the South African mint that took the world by storm.
In 1967, South Africa was the world’s primary producer of gold and the South African mint came up with an ingenious way to market South Africa’s gold. They decided that the best way for the average person to buy gold would be in the form of a coin. This was pure ingenuity, as it opened up the market place to as many consumers as possible. Prior to the introduction of the Krugerrand the only way to buy gold was in the form of gold bars. Gold bars are cumbersome and they also preclude the smaller investors who make up the largest part of the gold market buyers today.

A South African mine’s Tamrock Solo long-hole drill rig, used for bulk mining of the orebodies. For South Africa as the world’s largest gold producer at the time of the production of the Krugerrand, it became an ingenious concept to better market gold.
The consumers of gold the world over fell instantly in love with the concept of the 1oz Krugerrand. Our mint also decided that they would confer onto the coin legal tender status. This would allow Americans to buy the coin as due to American legislation at the time Americans were precluded from buying or holding gold. But this legislation did not include legal tender gold coins. Indeed every single mint that has access to gold today produces 1oz coins that are virtually identical to the Krugerrand. Other mints have increased the purity of the gold that they use in their gold coins. But the purity of a gold coin that contains 1oz of gold is incidental. This is because regardless of the purity of any coin they all contain one troy ounce of gold. Purity is only of significance in terms of coin wear. The less pure the coin the more resistant to wear and tear the coin is. This is because pure gold is very soft and wears very quickly so it is generally mixed with other metals to make it harder wearing. When mixing other metals with the gold all manufacturers still place 1oz of gold into the coin. But due to the fact these coins are bullion coins and not used for circulation like money wear and tear is not really an issue.

This is a picture of South Africa’s past President Paul Kruger (1825–1904), whose image appears on the obverse of the Krugerrand. He was a larger-than-life character and had the courage of a lion. He also loved the African countryside together with its animals and was the founder of the world famous Kruger National Park.
A giraffe in Kruger National Park dwarfs visitors’cars. President Paul Kruger was a conservationist before the term even came into use. He believed that the Eastern Transvaal in South Africa depicted the Garden of Eden. He created the park to preserve the animals, flora and fauna for future generations. A visit to the Kruger National Park is a must for any tourist and can be regarded as one of the greatest wonders in the world.

If you want to see a wide variety of the most exciting wildlife on the planet, the Kruger National Park is impossible to beat anywhere in Africa. Sighting the big five of lion, leopard, elephant, rhino and buffalo is virtually guaranteed as well as kudu, impala, giraffe, wildebeest, zebra and many other species. Due to the enormous size of the park (bigger than the whole of Ireland) you can experience
multiple habitats and ecosystems.
The springbok appearing on the reverse side of the Krugerrand is South Africa’s national animal.

Why you should be buying gold right now


If you are thinking of investing in Krugerrands, you may be doing so because the gold price is on the rise. Krugerrands are effectively 1oz of fine gold. This is the main reason why Krugerrands are purchased. We will now examine the reasons why we feel that there has never been a better time to invest in gold.

Two of the world’s largest and most powerful financial institutions are called The World Bank and the IMF (International Monetary Fund). These are owned and controlled by the United States treasury and hold the some of world’s largest reserves of gold. The holdings of the IMF alone are 3 217.8 tonnes, making them the world’s third largest holder of gold. The gold that they hold is the very foundation of these institutions and also of the world economy, which is under their control. The fact that these institutions have such large gold holdings implies that there is no greater asset anywhere in the world, other than gold. The United States is the richest and most powerful country in the world and is also the largest individual holder of gold. It has 8 133.5 tonnes of the metal, which constitutes 67.5% of their total assets. The fact that almost 70% of the United States assets are in gold, sends every investor a very simple message: you too should have gold!

The United States is the largest individual holder of gold in the world with 8 133.5 tonnes, constituting 67.5% of their total reserves. Thousands of years after gold was hoarded by ancient civilizations, gold is still the benchmark of wealth by which powerful countries are measured.
The IMF (International Monetary Fund) holds 3 217.3 tonnes of gold. It is the third largest holder of gold in the world. If one of the most respected institutions in the world is such a large holder of gold, it makes sense that you should be an investor too.
Past Federal Reserve Board Chairman Alan Greenspan is one of the greatest financial geniuses that the world has ever known. He has always been a very big proponent of gold. In this thesis that he has written he has openly proposed that the world return to the gold standard. He is also probably one of the reasons that the United States has almost 70% of their total assets in gold.

Gold and Economic Freedom

by Alan Greenspan
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one -- so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

by Alan Greenspan 1967
* The above are only extracts from Gold and Economic Freedom.

Everyone, no matter how large or small an investor they are, should have at least 10 -20% of their total assets in gold. This part of your investments will form an emergency fund and is the only investment other than cash that is instantly accessible as money whenever you may need it. You can also use gold as collateral at any bank. Because the gold market is now in a bull phase, your investment will benefit from as its price increases.

The American Federal Reserve on Wall Street, New York. This is the biggest repository of gold in the world. Some 13 000 tons of gold are kept behind 90 ton steel doors in vaults blasted out of solid granite.
One of these major changes has put gold into a bull market. For a long time now, gold has not been a good investment. In fact, by looking at a long term gold-chart, one is able to follow this poor performance. Since reaching a peak of US $875 in 1980, gold has been trapped in a trading range of between US $300 and US $400. This has been the case for more than 20 years and is primarily because the United States has done all in its power to keep the gold price as low as possible. The reason for this was to attract overseas investment for the United States. They have benefited tremendously from this foreign investment. All of this is about to change though, as the Unites States is confronted by the most powerful economic challenge they have ever encountered, namely the massive economy of China.


As you can see from the chart above, gold has been trapped for over 20 years in a US $200 trading range from US $400 – US $500. But gold has been ‘triggered’ into a fully fledged bull market and the situation seems to be changing.
The battle between China and the United States for the global economy has created a Gold Bull Market.

Analysts state that one of the main reasons for the gold price being on the move is China. The US and China have just embarked on a battle for the largest prize that the world has to offer, namely ‘control of the world economy’. To be considered the ‘king of the world’ today means that you have unequivocal control of the world economy. This position is currently held by the United States.

The United States and China are in a fully-fledged ‘trade war’. What the outcome will be, no-one knows for sure. The initial fallout seems to be an increase in the prices of all commodities. According to Bloomberg, gold rose 18 percent in 2005, outperforming the 3 percent gain in the Standard & Poor's 500 Index and the 2% return on the benchmark 10-year U.S. Treasury.
The Chinese yuan or renminbi has been pegged to 8.28 US dollars for years. The United States and its manufacturers have called this an unfair trading practice. After sending a very powerful US trading delegation to China, it became apparent that the Chinese would have little choice but to float their currency and let it strengthen. On 21st of July 2005, China scrapped the yuan’s peg to the dollar. The exchange rate immediately strengthened from 8.28 to 8.11.

At the heart of this issue is China’s trade surplus with the US and the rest of the world. A trade surplus is simply the amount of money by which your exports exceed your imports or put simply, profit. It is always better to have the rest of the world buying consumables from you than to be the buyer of consumables! China’s trade surplus tripled in 2005 to 102 billion dollars, suggesting that the US and European Union place even more pressure on China to allow its currency to strengthen. A stronger currency is naturally the last thing that the Chinese would want.


The great big giant Chinese dragon has finally awoken and has created a full bull market for gold. It has an insatiable consumption of the world’s commodities and has played a large role in driving up the price of oil. It has announced that it will be increasing its gold holdings from 600 tonnes to 2 500 tonnes in the near future.
China has in turn decided to retaliate to measures by the United States to strengthen their currency. Up until November last year, China had US $769 billion in foreign exchange reserves and up to US $246.6 billion invested in US treasuries. Unofficially though, China is believed to have at least 70% of their reserves in US dollar assets. China is sending a very strong and clear message to the United States: Let us keep the yuan pegged to the US dollar and we will buy your debt, obviously in the form of US treasuries, or we will place our funds elsewhere.

Recently the Chinese government announced that they were going to diversify their foreign exchange reserves and move away from US dollars and government bonds. This announcement is set to have profound effects on the financial markets of the world. Many see this as a heavy blow to the US dollar and a bullish factor for gold. The official Xinhua News Agency said in a report on December 26th 2005, that China should increase their gold holdings from 600 tonnes to 2 500 tonnes. That would make China the world’s fifth largest holder behind the United States, Germany, the International Monetary Fund and France.

This is an ancient coin called a TARENTUM. Calabria. Time of Kleonymos. Ca. 302 B.C. Gold coins have been produced and coveted for over 5 000 years, which is a compelling reason why many people believe that gold is the world’s only true money.

WORLD OFFICIAL GOLD HOLDINGS

(September* 2005) THE WORLD’S 30 LARGEST HOLDERS
RANK COUNTRY TONNES GOLD’S % OF RESERVES
1. United States 8 133.5 67.5%
2. Germany 3 427.8 52.4%
3. IMF 3 217.3 CLASSIFIED
4. France 2 856.8 59.3%
5. Italy 2 451.8 59.4%
6. Switzerland 1 290.1 35.2%
7. Japan 765.2 1.4%
8. ECB 719.9 22.2%
9. Netherlands 716.9 52.4%
10. China 600.0 1.2%
11. Spain 472.5 42.8%
12. Taiwan 423.3 2.5%
13. Portugal 407.5 58.2%
14. Russia 386.7 3.5%
15. India 357.7 3.8%
16. Venezuela 357.4 18.1%
17. United Kingdom 311.2 10.1%
18. Austria 302.5 36.7%
19. Lebanon 286.8 29.1%
20. Belgium 227.7 27.1%
21. BIS 189.3 CLASSIFIED
22. Algeria 173.6 4.6%
23. Philippines 170.6 13.9%
24. Sweden 154.5 9.9%
25. Libya 143.8 6.4%
26. Saudi Arabia 143.0 6.8%
27. Singapore 127.4 1.6%
28. South Africa 124.0 9.5%
29. Turkey 116.1 3.8%
30. Greece 107.9 66.7%
*Data supplied by The World Gold Council

China is obviously intent on becoming the leading world superpower. It will succeed if it is able to take control of the world economy from the United States. Part of this plan will be to emulate what the United States has done to make it the world’s most powerful nation. Central to that power is the fact that the United States has the largest individual reserves of gold in the world. China also needs to obtain significant gold holdings. The other factor is that the Chinese also place huge faith in gold. This means that the increasingly wealthy population of a staggering 1.3 billion Chinese, will also start buying more gold.

This is a picture of Hong Kong. The Chinese people have had a love affair with gold that has lasted for many thousands of years. As they become more and more affluent, it is only a matter of time before
they become prominent individual consumers (1.3 billion people)
of the metal as well a powerful Government.
The big questions posed by gold investors are: Has the United States lost its hold on the gold price? With its large deficit and an economic war with China, will the United States have the same level of control and leverage that it has over gold in the past? There is no doubt that once the United States no longer exercises such a powerful hold on gold, it will lead to the price of gold increasing. The last time that gold exploded in its performance was when the United States faced a large oil and economic crisis. It ended with gold at US $875 in 1980 under the Carter administration.