Gold Coins and Krugerrands: Are They Still a Good Hedge?

South Africa was built on gold. We call Johannesburg “Egoli”—the City of Gold. For over a century, the yellow metal has not just been a commodity for us; it has been the heartbeat of our economy and, for many older generations, the ultimate symbol of financial security.

There is a distinct cultural memory here. Many of us remember a grandfather or an uncle who kept a stash of Gold Coins and Krugerrands in a wall safe or buried in the garden. They viewed it as the only “real” money, a safeguard against government incompetence, currency collapse, and war.

But finance has evolved. We now have Bitcoin, high-frequency trading, and AI-driven hedge funds. In this digital age, does it still make sense to hold heavy, inert metal that pays no interest and costs money to store?

As an analyst, I often have to separate sentiment from strategy. While the romance of gold is strong, the mathematics of it is complicated.

In this deep dive, we will examine whether Gold Coins and Krugerrands are still a valid hedge for the modern South African investor. We will compare the legendary Krugerrand against modern ETFs, unpack the critical tax advantages that most people miss, and decide exactly how much of your portfolio should be shiny.

To understand where commodities fit into a diversified asset mix, I strongly recommend you read our foundational pillar: The Ultimate Guide to Investing in South Africa.

The Legend of the Krugerrand

To understand the asset, you must respect the history. The Krugerrand was introduced by the South African Mint in 1967. It was the world’s first modern gold bullion coin. At the time, it was created to market South African gold to the world.

It was a stroke of genius. By the 1980s, the Krugerrand accounted for 90% of the global gold coin market. It paved the way for the American Eagle, the Canadian Maple Leaf, and the Australian Nugget.

But the Krugerrand remains unique for one specific legal reason: It is legal tender in South Africa. Technically, you could walk into a shop and pay with it (though the face value is purely symbolic, and the gold value is far higher). This “legal tender” status is not just a quirk; it is the basis for a massive tax advantage regarding VAT, which we will discuss later.

When we talk about Gold Coins and Krugerrands in SA, we are almost exclusively talking about the Krugerrand. It is the gold standard of liquidity.

The Case for Gold: Why Buy the Shiny Metal?

Why would a rational investor buy an asset that just sits there? Gold doesn’t pay dividends like a company. It doesn’t pay rent like a property. It doesn’t pay interest like a bond.

You buy gold for what it is, not what it does.

1. The Ultimate Crisis Hedge

Gold is the “fear trade.” When stock markets crash, wars break out, or pandemics strike, investors panic. They sell risky assets (shares) and run to safety. Historically, gold holds its value or rises during these times. It is the fire extinguisher in your house. You hope you never use it, but you are glad it is there when the kitchen catches fire.

2. The Currency Hedge (The Rand Reality)

For South Africans, this is the most compelling argument. Gold is priced in US Dollars globally.

• If the gold price remains flat ($2,000/oz), but the Rand crashes from R18 to R20 against the Dollar, the Rand price of your Krugerrand goes up.
• By holding Gold Coins and Krugerrands, you are effectively betting against the Rand without having to open an offshore bank account. It is a “hard currency” asset that lives in your pocket.

3. Inflation Protection

Over centuries (not necessarily decades), gold has maintained its purchasing power. An ounce of gold bought a fine suit in Roman times, and an ounce of gold buys a fine suit today. Fiat currency (paper money) eventually loses value due to government printing (inflation). Gold cannot be printed.

Physical vs. Paper: The Great Debate

This is the fork in the road. You can own gold in two ways: Physically (Coins) or Digitally (ETFs).

Option A: Physical (Krugerrands)

• The Pro: Counterparty risk is zero. If the bank fails, if the internet goes down, if the grid collapses, you physically hold the wealth. It is the ultimate insurance policy. There is also a psychological comfort in holding the weight of it.
• The Con: Storage and Security. In South Africa, keeping gold at home is a genuine security risk. If you use a bank safety deposit box, that costs monthly fees. If you insure it, that costs premiums. These costs eat into your returns.

Option B: Paper Gold (ETFs)

You can buy the NewGold ETF (GLD) on the JSE.

• The Pro: It tracks the gold price perfectly. You can buy and sell it in seconds on your phone. No storage fees. No security risk.
• The Con: It is a financial instrument. If the entire financial system collapses (a generic “doomsday” scenario), you just have a digital entry, not metal.

Johan’s Verdict: If you are buying gold as a speculative trade (to sell in 6 months), buy the ETF. If you are buying gold as a generational hedge against societal collapse, buy Gold Coins and Krugerrands.

The Hidden Costs: Spreads and Premiums

Beginners often get burned by the “Spread.”

When you look at the gold price on the news, that is the “Spot Price.” However, you cannot buy a Krugerrand at the Spot Price. You have to pay a “Premium” (usually 3% to 5%) to the dealer or the mint to cover manufacturing and distribution.

• Scenario:
  • Spot Price of Gold: R40,000 per oz.
  • Dealer Selling Price (Ask): R42,000 (You pay this).
  • Dealer Buying Price (Bid): R38,000 (You get this if you sell back).

This means the moment you buy a coin, you are instantly “down” by the spread amount. The gold price needs to rise by roughly 6% to 8% just for you to break even. Gold Coins and Krugerrands are terrible short-term investments for this reason. They are buy-and-hold assets.

Tax Implications: The VAT Miracle

This is the most critical section of this guide. Pay attention, because getting this wrong costs you 15%.

Value Added Tax (VAT)

• Gold Jewellery: If you buy a gold chain or a commemorative medallion that is not legal tender, you pay 15% VAT.
• Krugerrands: Because they are technically “currency” (legal tender) under the South African Reserve Bank Act, they are zero-rated for VAT.

This means you do not pay VAT when you buy them. This makes the Krugerrand the only sensible vehicle for physical gold investing in SA. Buying gold bars or jewellery puts you 15% behind the starting line immediately.

Capital Gains Tax (CGT)

While VAT-free, Krugerrands are not free from Capital Gains Tax. When you sell your coin for a profit, that profit is liable for CGT. You must declare it to SARS.

• Note: Some collectors argue that because they are “legal tender,” they should be treated like cash (exempt). SARS generally disagrees with this interpretation for coins held as investments. Assume you will pay CGT.

Where to Buy Safely

South Africa is rife with scams. “Gold Coin Exchanges” pop up in malls and then disappear. Never buy gold from an unverifiable source on Facebook Marketplace.

Trusted Channels:

1. The SA Gold Coin Exchange (Scoin Shop): The largest retailer. High premiums, but convenient and safe.
2. Rand Refinery: The actual manufacturer of the coins. They supply the dealers.
3. Banks: FNB and Standard Bank allow you to buy Krugerrands, and they often offer “Safe Custody” options where they hold the coin for you.
4. Authorised Dealers: Look for members of the Jewellery Council of South Africa.

Johan’s Tip: Always compare the “premium over spot.” If one dealer is charging 10% over the spot price and another is charging 4%, the choice is obvious.

Allocation: How Much is Too Much?

We have established that Gold Coins and Krugerrands are a hedge. But you don’t build a house entirely out of fire extinguishers.

Gold is a non-productive asset. It does not innovate. It does not pay rent. If you had put 100% of your money in gold in 1980, you would have preserved your wealth, but you would not have multiplied it compared to the S&P 500 or the JSE Top 40 (with dividends reinvested).

My Recommended Allocation:

• Aggressive Growth Portfolio: 0% to 5%.
• Balanced Portfolio: 5% to 10%.
• Defensive / Retiree Portfolio: 10%.

Do not exceed 10%. If you have 50% of your net worth in gold, you are betting on the end of the world. While that is a possibility, it is statistically unlikely. Bet on human ingenuity (equities) for growth, and bet on gold for safety.

A Shiny Insurance Policy

Are Gold Coins and Krugerrands still a good hedge? Yes.

In a world of printing presses, geopolitical tension, and a volatile South African Rand, holding a portion of your wealth in the only currency that has no central bank liability is simply prudent risk management.

But view it correctly. Do not buy a Krugerrand expecting to get rich next month. Buy it because you want to know that no matter what happens to the JSE, the ANC, or the Dollar, you hold an ounce of immutable value in your hand.

It is not an investment; it is a legacy. It is the coin you pass down to your children when paper money has faded.

Your Next Step: Check the current spot price of gold in Rands on a site like Kitco or GoldPrice.org. Then, call a reputable dealer like the SA Gold Coin Exchange and ask for their “sell” price on a 1oz Krugerrand. Calculate the premium. If it is under 5%, consider buying your first ounce.