Most people are asking why it is legal to trade in gold coins now when it has generally been the position that individuals cannot trade in gold.
The point of departure is to assure the public that buying and selling gold coins is in compliance with section two of the Gold Trade Act, which allows the possession and ownership of gold articles of commerce such as gold coins.
Having established the legal basis for the gold coin trade, I’ll proceed to explain the history of gold coins in general and how the coin will work in Zimbabwe in particular.
The history of gold coins/bullion
Owning and trading in gold is not a new phenomenon. The South African Krugerrand was the first ounce-denominated gold bullion coin. It was launched in mass-produced quantities in 1970.
During the 1960s, the ounce-denominated bullion coin concept had been developed by SA’s gold producers, whose annual gold output accounted for 70 percent of the world’s annual gold mine output at that time.
Anticipating the abandonment of the Gold Standard, which finally came to an end in 1971, and the removal of restrictions inhibiting the private ownership of gold in many countries, their objective was to make it easy to invest in gold in the form of coins.
In this context, they proposed the minting of a gold “bullion” coin that would contain exactly one troy ounce of fine gold — for issue at a price directly related to the prevailing value of its fine gold content. The use of gold coins spread globally with the introduction of Australian Lunar, Austrian Vienna Philharmonic, the Mexican Libertad, the American Eagle, the United Kingdom’s Britannia, Chinese Panda and the Canadian Maple Leaf.
What are gold bullion coins?
The coins are called gold “bullion” coins to emphasise that they are issued primarily for gold investors. Standard features include being issued at prices that are not fixed but based on the prevailing value of their fine gold content.
This enables the coins to be traded by dealers and investors as gold investment products at prices that reflect the international gold price.
They are typically mass-produced in large quantities. This normally ensures that the premiums at which they are traded above the value of their fine gold content are relatively stable. They are also generally legal tender coins in their country of issue.
Like all coins, their technical specifications are guaranteed by legislation. In the case of the Mosi-oa-tunya coin, they are governed by Exchange Control Directive RX 20 (“Directive RX 20”).
Whether this can be described as legislation in the strict sense is, however, the subject of another article. Lastly, they usually have no nominal or no face values. Whether issued with or without monetary face values, their market value is directly related to the value of their fine gold content.
So what are gold coins really?
They are a new asset class in which value can be stored. The gold coin fits in perfectly with other asset classes like real estate, stocks, and bonds. According to Directive RX 20, the gold coin is a liquid asset, which is tradable, acceptable as collateral and is guaranteed that the central bank will buy it back when the holder of the coin so requires.
Simply put, the gold coin is a repository of value that an owner can liquidate at any time.
The rationale behind the 1-ounce (oz) weight
The 1-oz coin accounts for over 80 percent of the total amount of gold used in the manufacture of ounce denominated bullion coins.
The reason for this is that 1-oz coins normally have a lower percentage premium or mark-up above the value of their fine gold content. They also have a smaller spread, which is the difference between the buying and selling price.
They can be collectible — all gold bullion coins incorporate an attractive decorative design on their reverse side.
While most have a permanent design, some have designs that are changed each year to provide a supplementary collectable dimension. For example, Australian Kangaroo, Australian Lunar and Chinese Panda bullion coins.
This means that if the Reserve Bank of Zimbabwe (RBZ) deems it so fit, there can be a thriving collectors’ market for Mosi-oa-tunya coins, expanding the coin’s usefulness as a repository of value.
How are they sold
Banks will sell gold coins on behalf of the RBZ. These sales will be subjected to the usual KYC principles and best practices. Upon sale, the coin is to be valued at the prevailing international price of gold plus 5 percent.
Also, the RBZ will publish daily, the price of the gold coin at 8am. The coins cannot be sold without an accompanying bearer certificate with security features.
Purchasing regimes for different buyers
Where the gold coin is concerned, no two buyers are the same. For instance, domestic buyers including individuals can buy the coins in local or foreign currency. The same rule applies for domestic corporate entities.
For exporting entities, the gold coin can only be bought in foreign currency from their retained export portions. Local banking institutions are not allowed to purchase the gold coins up until such a time as the RBZ grants them permission. For the time being, banks can only operate as middlemen between the central bank and the purchasing public.
Buy-back clause
As a means of promoting a culture of saving in Zimbabwe, gold coins can only be bought back by the bank after a period of 180 days.
If this condition is satisfied, the seller also needs to produce the original bearer certificate for the specific coin, which shall be paid for at the prevailing international price of gold on spot basis.
Exporting gold coins
It appears there are no restrictions on the exportation of gold coins. The only caveat is that each gold coin must be accompanied by its bearer certificate.
Muza is a duly admitted lawyer with expertise in business law, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.