Kruger rand prices are driven largely by 3 variables:
First is the dollar price of gold – as the price of gold internationally, in dollar terms, go up, the value of Kruger rands will do the same. To be more precise, every 1% increase in gold price internationally, will translate into roughly the same for Kruger rand.
Thus, if inflation erodes the value of international currencies (like in the 1980’s when dollar and pound inflation was running at double digit numbers), owners of Kruger rand are protected.
Secondly, the rate of exchange between the rand and US dollar. Any depreciation in the rand increases the rand price of Krugerrands. By illustration – if the rand depreciates against the dollar (assuming an unchanged gold price), a Kruger rand’s value would similarly increase.
This is very important – by owning Kruger rand’s, you protect the dollar purchase power of your money.
Finally, by virtue of it being in minted form, Kruger rands trade at a premium to the intrinsic gold value.
This is called the numismatic premium. When buying coins online from FNB, this is normally quoted at 4%, meaning that the total purchase price equals 104% of the rand gold price then prevailing.
When selling one’s coin, the premium is recovered. The numismatic premium results in a slightly geared exposure to the gold price, meaning owning a one ounce Kruger rand actually gives one exposure to 1.04 ounces of gold.
Etienne Van Wyk