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Immediate Effect of Reagan Plan Mostly Symbolic, Observers Say With PM-Sanctions-South Africa

September 10, 1985

Immediate Effect of Reagan Plan Mostly Symbolic, Observers Say With PM-Sanctions-South Africa Bjt

NEW YORK (AP) _ With Krugerrand sales already in a slump, President Reagan’s anti-apartheid sanctions against South Africa are not likely to affect the market here much, according to industry observers.

Likewise, American companies doing business in South Africa should be relatively unaffected because of the limited business involved, analysts said Monday.

The rising tide of world protest against South Africa’s racial segregationist policies has already made its mark on the way business is being carried on with that country, they explained.

Reagan announced that he plans to ban imports of Krugerrands, the one-ounce gold pieces which, until recently, have been popular among coin collectors and gold enthusiasts.

The president also said he was prohibiting bank loans to the South African government except to programs helping blacks; banning computer exports to South African military and law enforcement agencies; and halting exports of most nuclear technology.

A senior administration official, briefing reporters at the White House on condition he not be identified, said banning imports of Krugerrands was the only penalty that marked a genuine change in existing policy.

Currency traders noted the proposed ban on Krugerrands would affect only imports of new coins, not sales of coins already in the United States.

″There are so many millions of these coins going around, it is hard to believe there is not going to be a market,″ said Alan Posnick, vice president at Manfra, Tordella & Brookes Inc., a currency trader.

Even so, the popularity of the South African currency has been plunging steadily this year.

This shows that the market had already ″discounted″ the impact of that announcement, said Charles R. Stahl, editor of the New York-based Green’s Commodity Market Comments.

At Posnick’s company, Krugerrands outsold Canada’s Maple Leaf gold coin by about 9-1 three years ago. By early summer, the ratio had reversed to 7-3 in favor of the Maple Leaf, and in the last few weeks it has stood at about 9-to- 1 in the Canadian coin’s favor, Posnick said.

Reagan’s announcement should cause little change in that ratio, he said.

Before the recent further slowdown, Stahl had estimated that Krugerrand sales dropped from 200,000-250,000 ounces a month last year to 44,000-60,000 ounces a month.

Posnick said the Krugerrand has been trading at a 1 percent discount to a 3 percent premium to the price of gold.

″But a $10 bill is worth $10. A Krugerrand is an ounce of gold,″ he said. Thus, the value of the gold alone protects it from losing much value, except for a discount that might cover meltdown fees.

On Monday, when gold was trading at $321 an ounce, Posnick said his company would buy Krugerrands at $320 and would sell them at $325.70. One-ounce gold Canadian Maple Leaf coins were selling at $330.

On the other areas of Reagan’s proposal, observers suggested there was little likelihood that American companies would suffer from the sanctions.

Livia Asher, a banking analyst at the investment firm First Boston Corp., said the loan restrictions should not hurt U.S. banks, because they already had been ″pulling away from″ giving South African loans because of the public outcry.

Stanley Rubin, an analyst at the Merrill Lynch investment firm, said the proposed sanctions would not have much impact on the major exporters of nuclear technology.

″For General Electric and Westinghouse, South Africa represents considerably less than 1 percent of their sales and assets, and probably less than that in terms of profits,″ he said.

On the computer restriction, Frank Halpern, an analyst at the investment firm of Martin Simpson & Co., said, ″The South Africa market is relatively small to begin with, and restrictions on computers to law enforcement agencies there would amount to a virtual half-drop in the bucket.″

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