Last Updated : 13 July 2009 at 15:30 IST

South African law change may boost gold demand

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Commodity Online
JOHANNESBURG: A change in law in South Africa may help boost the demand for gold.

Bruce Cameron writes in Personal Finance that people in South Africa can now own Gold bars for the first time since 1911. Until now, they were limited to gold jewellery or gold coins, which are often sold at outlandish prices.

And this change in law is likely to boost the gold bar sales in South Africa with more people buying it for investment purpose.

The ownership by individuals of unwrought gold and gold bars was restricted in 1908 in terms of the Transvaal Precious and Base Metal Act, and this legislation was placed on the statute books of the Union of South Africa in 1911. This was reinforced in 1967 with the Mining Rights Act, which made it a criminal offence to be in possession of unwrought gold. Unlicensed South Africans could own gold only in the form of jewellery and coins.

This changed in 2005 when Parliament approved the Precious Metals Act, permitting the manufacture of minted bars.

Bernard Stern, the chief executive of precious metal refiner Metal Concentrators, says his company applied for a permit to produce precious metal bars last year. Permission was granted last month by the precious metals regulator after consultation with the Reserve Bank.

He says the 100g bars will carry a premium of five per cent above the Gold spot price, and the 10g bars will have a premium of eight per cent.

Currently, Krugerrands are mainly selling between R7,700 and R8,470 - between four and 14.5 per cent above the gold spot price of R7,390 a troy ounce - although some chancers charge even more. The buy-back prices are between six and 12 percent below the selling prices.

The margins on so-called collectors’ items are spectacular. These coins are generally sold at around R18,000 (145 per cent of the gold spot price), with a buy-back as low as R13,000.

VAT will be payable when you purchase a bar, and you will have to pay capital gains tax on any profit (less any exemptions) you make when you sell it.

If you are registered as a VAT vendor, you can recover the VAT and then charge the tax on a subsequent sale. Krugerrands are zero-rated for VAT purposes.