The gold rush is associated with a time when thousands of miners sought to make gains fast upon discovery of new mines. The interest would then spread across continents through trade merchants as people sought early buy-ins. This was rife in the 18th Century, led by California in the United States in 1848.
Two centuries later, with little to no new gold mines, the current generation has the capital markets to distribute that wealth. It is no longer a preserve of the rich, with the introduction of Exchange Traded Funds (ETFs). ETFs are funds whose performance replicates the spot market, but which allow investors to gain value in a pool of stocks, debt or commodities at more affordable rates.
This understanding then underpins the importance of tracking global performance of the commodity itself, in this case, Gold, which is the only ETF so far in Kenya, originated and sponsored by Absa and launched in March 2017 at the Nairobi Securities Exchange (NSE).
The highest ever recorded price of gold was in September 2011 which traded at USD1, 920.30 per ounce at a time when the world was still struggling from post financial crisis effects. More recently, Gold has achieved an all-time high in July 2020, primarily as a result of the metal being perceived as a safe-haven asset for investors during a time of shock and uncertainty in financial markets emanating from the Corona virus pandemic. Since markets initially reacted in March 2020, there have been multiple fundamental factors supportive to the investment argument for Gold, noting this year’s ETF net purchases totalling 24.8 million ounces or over $1.1 billion to the end of July – an increase of 30%.
The Gold ETF in Kenya has also been rising with a 48.8% increase since launch, and 22.4% increase Year-to-Date. A new high for the cross-listed ETF was recorded at Kes.1,860 on July 21, 2020 at the NSE. The demand is expected to continue rising as uncertainty continues around Covid-19 and investors seek safe, stable asset classes amid the volatile financial markets. As the NSE, we have noted renewed investor appetite for listed ETFs. For instance, on 31 March 2020the Absa New Gold ETF recorded an all-time high turnover of Kshs. 66 Million, an 8.15% contribution to overall day’s turnover of Kes.804 Million- the highest since its listing. General devastation and concern specific to the global economy outlook, given the pandemic’s effects on business and employment, have compelled investors to seek out Gold to preserve their wealth.
As the global economy and growth has declined this year, a substantial amount of fiscal and monetary stimulus has been dispensed by central banks globally to support distressed economies – one stimulant being a global low real yield rate environment. This lower interest rate environment has been supportive of Gold as it decreases the opportunity cost of investors holding Gold compared to yield bearing investments. Another aspect of this stimulus is potential future inflation which often follows stimulus of such expansive scale, and here investors often turn to Gold as a hedge against inflation.
Geopolitical tensions between two of the world’s biggest economies, the United States and China, continues to deepen to unprecedented lows and this additional uncertainty in the market has added further support to the metal – with the U.S. continuing to influence a diplomatic coalition demonstrating China’s self-isolation in the global market. As internationally Gold is denominated in dollars, the weaker dollar that has been observed over the past three months has been supportive of Gold as this weakness increases the value of other currencies, and also, the demand for the metal.
So year to date, the ongoing increasing new virus cases and the absence of a vaccine, the expectation of more stimulus from central banks globally, the continued lower real yield environment, dollar weakness and continued geopolitical tensions have catapulted Gold beyond its all-time high and continues to support the metal.
It is encouraging to see positive market trends despite the unfortunate circumstances we all find ourselves in. This is the highest activity seen on the ETF based on the turnover recorded since its listing at the NSE. Investing in ETFs is affordable and easier for first time, retail and institutional investors to access a wider range of investment options previously only available to select investors. The NSE continues to encourage investors to take advantage of this buyers’ market.
To reap the benefits of this surge, investors are only required to purchase a minimum of one hundred units. Albert Einstein said that ‘In the middle of difficulty lies opportunity’. Therefore, as we exercise caution in these challenging times due to Covid-19, let us also not be blind to the opportunities that come in amidst the black swan event facing the globe currently.
NAIROBI SECURITIES EXCHANGE
