It took the South African Mint 50 years after the release of the first gold Krugerrand in 1967 to produce a silver version of the same. The silver Krugerrand was born in 2017 and joined the collecting world after much anticipation. I remember the level of excitement in the market. As soon as the news was announced, social media was abuzz. I was inundated with emails and phone calls. While the general market interest has been excellent, the misunderstanding and lack of clarity about this product seems to be widespread. Here, I would like to bring some clarity to ensure that would-be investors are clear about the nature and variation of this beautiful product.
The 2017 high-premium commemorative silver Krugerrand
In 2017, the SA Mint released the first-ever silver Krugerrand which was a 50th anniversary commemorative coin. This coin was a high premium commemorative coin with a limited mintage of 1 million. The coin contains a 50th anniversary mintmark on the face of the coin. In addition, the SA Mint also released an even higher premium proof silver Krugerrand with a maximum mintage of 15,000 coins (packed in a box with a certificate of authenticity). While this coin was aimed at precious metals investors, the high premium pushed this coin rather towards collectors. To be clear, I am not suggesting that there is a distinct difference between investors and collectors, rather, collectors are more readily prepared to pay higher premiums in order to add a special coin to their collection. The 2017 50th anniversary release is certainly an important coin. It was a historical release. Paying a 100% or higher premium over and above the value of the silver content of the coin is not an issue when you want to hold a piece of history in your hand.
The 2018 bullion silver Krugerrand
A year after the release of the 2017 silver Krugerrand (50th anniversary release), the 2018 low premium silver bullion Krugerrand was first released by a Rand Refinery and SA Mint partnership. With unlimited mintage, it was pitched to compete against other world-renowned bullion coins like the American Silver Eagle, the Canadian Silver Maple, and the British Silver Britannia. Since the Krugerrand is a recognised and respected world brand, it became an instant success as it took the stage as one of the most trusted bullion brands in the world. While this was another historic moment, I often wonder what took the South African government so long to enter the silver bullion space?!
Are you an investor or a collector?
Over the years of trading and consulting, I have noticed that while most of my clients do not ask this question outright, the difference between collectors and investors is not always clear to those who make their first precious metal purchase. The difference is particularly important, not least because many confuse the 2017 and 2018 silver Krugerrands.
Generally speaking, coin collectors and those who invest in rare and numismatic coins (which may or may not contain silver or gold) are concerned with issues such as rarity, mintage numbers, certification, coin design, and so on. Pure investors in silver and gold, on the other hand, are not concerned with such things. Rather, they are typically concerned with weight, purity, and price. The lower the premium above the cost to manufacture the bullion product, the better. The strategy is to accumulate the most amount of silver and gold ounces for the least amount of rands.
For example, a coin collector may pay R1,500.00 for a proof 2017 silver Krugerrand. One can argue that such a purchase is still an investment in precious metals given the historic significance of that coin and its metal content. But a bullion investor would not pay such a high premium for an ounce of silver that sells for less than a third on the open market. Whether you are an investor, or a collector, or both, it is very important to recognise into which category you fall.
What drives the price of the silver Krugerrand?
The 2017 Krugerrand price is driven by market sentiment. The price reflects what collectors are willing to pay. Since their release, they have been decreasing in price. Several people bought 2017 silver Krugerrands for R750. Some paid over R1,000. Today, these are available for much less on some online platforms.
The 2018 silver Krugerrand price, however, is driven exclusively by the silver price and the rand/dollar exchange rate. The rand price drops if the exchange rate strengthens and increases if the rand weakens. Similarly, prices drop if the silver spot price decreases, and increase if the silver price increases. This can be very confusing for prospective investors who are trying to understand how bullion prices function and what formula dealers utilise to set the price of their silver and gold bullion products. I often receive phone calls and emails from new investors wanting to know why the spot price for silver or gold is increasing, but the prices of bullion products are not. The answer: because at the same time that the silver or gold spot price is on the move, the rand may be strengthening at the same relative rate which results in a price stalemate. The same is true when the spot prices are decreasing, and the rand is weakening; prices may remain the same. The real moves in the rand price of silver generally take place when the silver spot price moves in the same direction as the rand/dollar exchange rate. The result is that you pay more in dollars for silver and gold, and you also pay more for each dollar in rand terms, so the price increases. The same principle applies to price decreases, which often result in 5%-6% price moves in either direction on some days.
What about the first year of issue bullion coins?
As with most bullion coins across the world, the prices are mainly uniform. That is, each mint charges a relatively similar manufacturing premium over the spot price of silver and gold. There are a few that carry higher premiums, but those are the exception and not the rule. However, first-year issue bullion coins often sell for a slightly higher premium as the years go by. For example, the 1986 American Silver Eagle (first year of issue) is trading for well over 100% above the later years. The 1988 Canadian Silver Maple (first year of issue) trades at a 50% premium compared to the 2018 release. The same applies to bullion coins like the 2016 Australian Silver Kangaroo, and the 1967 gold Krugerrand.
Interestingly, there is another price characteristic that is rather strange for bullion coins, especially given that their mintages are unlimited (i.e. minting equals total demand). Some silver bullion coins trade at a premium not only due to their first year of mintage, but also because the coin is from the lowest total mintage year. For example, the lowest yearly mintage for the silver Eagle was in 1996, with less than 4 million coins minted. This makes the 1996 Eagle rare relative to yearly manufacturing numbers. Bullion dealers and private sellers certainly try to cash in on this.
The 1997 Canadian Silver Maple also trades at a premium, since it was the year of its lowest total mintage of just over 100,000 coins. To put this into perspective, the highest number of Maples minted was over 29,000,000 in 2014.
Will the 2018 first year of release silver bullion Krugerrand collect a similar premium in the years to come? If history is anything to go by, then the answer is probably yes. Will the mintage numbers over the years create a scenario in which the sales of a specific year of issue become anaemic and therefore, become collectibles? Maybe. However, if that is indeed the case, it should be viewed as a bonus, and not the chief rationale for buying them. After all, the 2018 silver Krugerrands are low-premium bullion coins with prices directly linked to the spot price and the exchange rate, not rarity.
The future of the Silver Krugerrand
Given that the Krugerrand is a trusted bullion brand without equal, the silver Krugerrand has a very bright future. Trust in the precious metals market is exceedingly difficult to earn for any refinery or mint (private or government-owned). Trust is developed after decades of consistency in terms of quality and market supply. For this reason, the Krugerrand brand is trusted and recognised the world over, and I am certain that the silver version will change the investment bullion landscape in South Africa. It already has! I predict that within the next few years, the silver Krugerrands will surpass 10 million coins minted yearly. In 2016, the Perth Mint released the silver Kangaroo 1 oz coin to compete in the legal tender bullion space against the American Eagle, the Canadian Maple, and the like. In the first year of issue, the Perth Mint produced and sold just over 11 million silver Kangaroo coins. With the reputation of the Krugerrand, I think that the silver Krugerrand will surpass this figure, notwithstanding the market factors that may be different from 2016.
The bullion silver Krugerrand is a historic release and it will become one of the most desirable and trusted silver legal tender bullion coins in circulation. ‘Well done’ to the SA Mint and the Rand Refinery for finally making the decision to bring this product to the South African and international bullion market. 2018 was indeed be a memorable year!
