A Brief History of Bullion

A Brief History of Bullion

Back in 1964 the prime, indeed practically the only, gold bullion coin for investors in the UK was the British Gold Sovereign. Over ninety percent of our gold bullion trade was in gold sovereigns. This is not to say there were no other gold bullion coins available, however, none were as favored, accessible, competitively valued, or simple to dispose of as gold sovereigns.

Amongst international trade, sovereigns were also important. The primary choices were often restricted to ‘old’ or ‘new’ sovereigns, with further distinction specific coins for example Elizabeth II (new), ‘kings’ (George V, Edward VII) (old), ‘Victorias’ (old) etc. Pre-Victorian sovereigns were generally traded as numeric pieces rather than bullion value.

At the time there were approximately 50 gold coins available internationally. However most of them were, or presumably were, popular within their own or neighbouring countries, while sovereigns were often reasonably popular across other countries. In most countries, there were only one or two coins that were readily available for investment purposes. An important factor in investment is liquidity. Investors need to be able to readily cash in on their investment. For example, within the British market, it would have been fairly uncomplicated to sell sovereigns quickly, many at a time, and with modest dealing spreads (costs). However, attempting to do the same with Ducats or Rands would prove more difficult and certainly result in higher dealing spreads. At the time it was not legal for private individuals to buy gold bullion bars, and while there was the alternative of half sovereigns, they were not always available in large quantity as well as not always easy to sell in large quantity, and were often more worn than full sovereigns. All this helps explain why most of the gold bullion dealing and investment of the time was done in gold sovereigns at least until the introduction of one ounce gold bullion coins.

The first one ounce gold bullion coin was produced by Rand refineries of South Africa in 1967, who introduced the (now famous) Krugerrand. It was sold to major banks and dealers at just 3% premium over it’s gold content value enabling it to reach investors for a typical 5%. It’s success is mainly attributed to it being the first major coin containing exactly one troy ounce of gold.

It started a new class of gold bullion coins due to all other existing gold coins being issued as part of a national currency meaning their weights and actual gold content were mostly based an historic, often antiquated units of exchange. For example, the specification for gold sovereigns states they should weigh 7.9881 grams, and be composed of 22 carat gold (91.66′% pure). This means sovereigns officially contain 0.2353544 troy ounces of gold, hardly a simple fraction of a troy ounce. Other older historic bullion coins had the same problem, where gold being internationally traded in troy ounces, meant working out your current gold value was not a task to be done over your morning newspaper.

This made the introduction of the Krugerrand very important in international markets, except in Great Britain due to the 1966 Exchange Control (Gold Coins Exemption) Order, which prohibited U.K. citizens from purchasing or owning gold coins, making the Krugerrand almost irrelevant until 1971. There were a number of exemptions and limitations on this act however it was only when the act was repealed that citizens were free to buy, sell, and own gold coins, making it the first time Brits could legally buy and own Krugerrands. This enabled a restart of the UK market until 1973 when VAT was imposed on gold coins, once again decimating the UK market until 2001.

In the meantime, Canada’s One Ounce gold Maple Leaf bullion coin was introduced in 1979, making it the first competitor to the Krugerrand. It was composed of 99.9% ‘fine’ or ‘pure’ gold. Many investors at the time favoured these over Krugerrands, perhaps due to false beliefs that they contained more gold, a fiction still perpetuated by some dealers.

In 1980, Rand refineries introduces fractional sizes of the Krugerrand, possibly in competition with the Maple, however because these cost more to produce they have always been issued at higher percentage premiums (5%, 7%, and 9%) in comparison with the one ounce versions (3%) making them less attractive for investment. More recently fractionals can sometimes be found for similar premiums as the one once versions.

In the 80s ounce coins became more widespread, in 1981 Mexico brought out a One Onza (Ounce) gold coin, in 1982 the Isle of Man brought out one ounce gold nobles and crowns, Gibraltar made gold Royals, and Canada brought out fractional sizes. In 1986 the U.S.A. introduced the one ounce gold eagle, with half and tenth ounce sizes, following with quarter ounces in 1987. Also in 1986, Australia started making its gold nuggets, in one ounce and fractional sizes. The British Royal Mint brought out its gold Britannia in 1987, in one ounce and fractional weights, and in 1989 Austria started issuing its Philharmonikers, China brought out its gold panda in 1993, and Australia added a Chinese Lunar Calendar series in 1996. America added a “fine” gold one ounce buffalo in 2006.

In 1985, trade sanctions were introduced against South Africa because of its apartheid policies. Many western countries adopted these sanctions which included a ban on the import of Krugerrands. Most of these sanctions were lifted in 1991 but during this period, Krugerrands were regularly smuggled into the U.K.

In 1991 larger sizes were introduced by Perth Mint, first a two ounce gold nugget coin, then ten ounce, and kilo sizes. Austria and Canada recently added some very large sizes in a novelty publicity drive in order to claim the accolade of making the world’s biggest and priciest gold coin. Perth Mint outdid them again in 2012, when it made a One Tonne Gold Nugget.

On the 1st January 2000 investment gold was exempted From VAT in the U.K. and E.U. Some European Union countries had zero or special VAT rates on gold coins before this, making this an E.U. unification measure. Gold bullion bars also became exempt at this time. Making the U.K. investment gold market free once more.

Currently there are over a dozen different one ounce bullion coins available, mostly also made in factional sizes which brings the count of gold bullion coins to over fifty. This has massively increased the choice for investors, however most prefer the simplicity of one ounce coins having the effect of exaggerating their importance over older traditional coins such as sovereigns. In comparison to the 90% of gold bullion coins being sovereigns back in 1964, now it is closer to 10% with popular choices being Gold Britannias, Krugerrands, and gold bars.


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