Wanted Krugerrand explained
WHAT IS A KRUGERRAND?
Krugerrands are 22ct Gold Bullion Coins, with a Gold purity grading of 91.67 percent. The reason behind the minting thereof was to promote South African Gold to international markets and to further empower individuals to own Gold Bullion. To this day, Krugerrands are still among the most frequently traded Gold Coins across the globe.
WHEN AND WHERE WERE THE FIRST KRUGERRANDS MINTED?
The first of these 22 carat Gold Coins were minted, through a collaboration between South African Mint and Rand Refinery, on the 3rd of July 1967.
WHAT IS THE HISTORY BEHIND THE NAME, ‘KRUGERRAND’?
This well-celebrated Gold Coin’s name is derived from the surname of former South African president, Paul Kruger, as well as the South African currency, ‘the Rand.’ Paul Kruger served as the president of South Africa from 1883 to 1900.
WHY IS THE KRUGERRAND 22CT GOLD?
Each Krugerrand is minted from 22 carat Gold, with a purity grading of 91.67%, so that each Krugerrand contains precisely 1 TROY Oz of pure Gold. The remaining weight thereof is attributed to the Copper alloy, which is added to the Coin to make it more durable for ‘circulation processes.’
WHAT IS THE PRICE HISTORY OF GOLD IN SOUTH AFRICA?
Over the last twenty years, the price of Gold, within a South African context, has increased with a staggering 1101.59% (Aug 2021).
IS THE GOLD PRICE LINKED TO THE US DOLLAR?
Yes, the price of Gold is ‘Dollar-denominated,’ which simply means that Gold’s price is always determined in US Dollars. This means that even if you were to buy a Gold Krugerrand in South Africa, with South African Rands, the price of the Krugerrand in question will in fact be determined in US Dollars and merely converted to South African Rand at the time of purchase.
HOW DO WE CALCULATE OUR BUYING AND SELLING PRICES?
Our ‘Buying Price’ is that of Spot Price, which is the General Market’s current index asking price of Gold at any given time. Our selling price is Spot Price plus 7%.
WHAT ARE THE 5 MAJOR FACTORS THAT INFLUENCE THE PRICE OF GOLD?
Central Banks Reserves: When Central Banks invest in Gold, they buy enormous quantities at a time. Thereby, creating a large demand for Gold at any given time, and by doing so they generally raise the price thereof. The same is true that when Central Banks sell Gold into the market. Under such conditions, they usually sell large quantities at a time, thereby lowering the Demand for Gold and decreasing its price.
The Value of the US Dollar:
There is an undeniable relationship between the Value of the US Dollar and the Price of Gold. This is an inverse relationship, which simply means that when the US Dollar strengthens, the price of Gold usually goes down. When the US Dollar weakens, the price of Gold usually goes up.
The Worldwide Jewellery Demand: When the demand for Gold Jewellery increases on a global scale, Gold’s price will undoubtedly rise as well. The opposite is also true, in that when the demand for Gold decreases across the globe, its price will undoubtedly fall.
Investment Demand as Wealth Protection: In times of Global or National financial instability, investors will often not receive their expected returns on bonds, equities, and real-estate investments. Therefore, the demand for Gold generally spikes dramatically and when it does, its price too will increase.
Inflation: When US Inflation rates rise, the value of the US Dollar automatically decreases. At the same time, most other investment avenues generally fail to deliver inflation-beating returns to their investors. Therefore, many investors turn to Gold, which is commonly viewed as a hedge against inflation and currency depreciation. Under such conditions, the demand for Gold will rise, and so too will its price.
WHY IS THE KRUGERRAND A GOOD INVESTMENT?
Buying Krugerrands is an excellent method of diversifying one’s investment portfolio, seeing as Gold is widely considered to be a proven hedge against inflation and currency depreciation. It’s also widely recognised as being a ‘liquid asset,’ which means that it can be quickly and simply converted into cash while retaining its market value. One of the biggest benefits to owning Krugerrands, is that it has Legal Tender status, which means that no VAT is charged in both the buying and the selling thereof. From a South African perspective, Krugerrands are easily obtainable, much more so than most other Bullion Coins. Last but not least, as one of the world’s most celebrated and recognised Bullion Coins, the Krugerrand can be traded virtually anywhere in the world.
WHAT ARE THE CAPITAL GAINS’ TAX IMPLICATIONS ON KRUGERRANDS?
The profits made from selling Krugerrands are taxable. Seeing as Gold offers its keepers no interest nor dividends, those who invest in it, do so primarily with the purpose of making a profit from it, through the increase in Gold’s price. SARS, therefore, argues that the taxpayer who chooses to invest in Krugerrands, must contemplate selling it at some stage in the future. Thereby, aiming to make a profit, which in return is taxable.
Taxpayers who decide to invest in hard assets like Krugerrands, must be careful to record the reasons for their decisions to invest in these assets. Also, their subsequent actions must always support their stated intentions. Failure to do so may make it difficult, if not impossible, to discharge the onus of showing why any proceeds made from Krugerrands should not be taxed. This means, that if you invest with no intention to sell soon, you may argue that the proceeds are not taxable.
When selling Krugerrands, without having any record of the buying price the coins in question, the following will apply: Paragraph 1 of the Eighth Sch which determines that the base of pre-valuation date-assets must be determined in terms of para 26-9. Paragraph 26(2) provides that where the pre-valuation date expenditure cannot be determined, the taxpayer must adopt either the market value method (para 29), or the 20% of proceeds method.
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