Demand for Krugerrands booming in South Africa

Demand for Krugerrands is booming in South Africa as the rising gold price drives interest in the coins used as a store of the precious metal. 

This is feedback from FNB Wealth and Investments CEO Bheki Mkhize, who told Daily Investor in an interview that the bank is seeing plenty of demand for Krugerrands. 

Mkhize said the bank has seen a considerable uptick in purchases of Krugerrands on its Wealth and Investments platform. 

The price of gold has hit several record highs in recent weeks, fuelling interest in assets exposed to the precious metal, such as Krugerrands and gold miners. 

Gold has even outperformed the benchmark S&P 500 index so far in 2024, with most of the increase in its price coming in the past month. 

The metal’s rarity and physical properties give it its inherent value besides being a shiny, coveted metal. Investors also use it as a hedge against market and global risk

Investors who expect the Federal Reserve to cut its benchmark interest rate are the main force driving up prices. 

But, the surge is boosted by other factors, including central banks — led by China — buying up gold to ease reliance on US dollars.

Central banks have been purchasing gold to ensure stability in a year that is set to be filled with uncertainty due to elections worldwide. 

Gold as a long-term store of value and a safe haven during times of economic and international turmoil.

Gold is considered a safe investment. When interest rates fall, gold prices tend to rise, as bullion becomes more appealing than income-paying assets like bonds. 

Investors also regard gold as a hedge against inflation, betting it will retain its value when prices rise.

The People’s Bank of China is emblematic of this trend. In March, it bought gold for the 17th straight month, adding 160,000 ounces to bring its reserves to 72.74 million ounces. 

As China builds its reserves, demand pushes up prices already boosted by usual investors.

This is part of a longer-term trend that began in 2022 following the Russian invasion of Ukraine. 

Aside from the uncertainty this created, the EU and US imposed sanctions on Russia, including freezing its central bank’s foreign reserves. This made many central banks rethink the kind of reserve assets they should hold. 

South Africa has not benefitted as much from recent rallies in the gold price in the past decade as gold mining in the country has lost its shine. 

The gold industry is expected to exist in South Africa for approximately 27 years, with many mines coming to an end before 20 years.

South Africa has approximately 68 Moz of gold reserves left, with 84% concentrated in Gauteng. 

The country’s historic heart of mining, Gauteng, has ten gold mines in operation and one mine in development. 

The Free State has only six years of gold mining left at current rates, with five gold mines in operation and one project in development. 

In Mpumalanga, there are currently seven operational gold mines, with one mine in development. The North-West has two gold mines. 

The closure of gold mines will likely have a significant economic impact on the affected regions. For example, the five gold operations in the Free State directly employ roughly 24,000 people, and the wider economic ecosystem and supply chain will also be impacted. 

The Minerals Council of South Africa revealed earlier this year that gold production has dropped significantly over the past few decades in the country  – by as much as 85.5%.