Covid-19 has set many investors into a panic. The majority of them have been liquidating their wealth and searching for safe havens to secure their wealth.
Most investors are rushing to secure their wealth in the dollar while many others are rushing for the gold. “Wise investors are putting their wealth in gold because they know what it has in terms of security in the face of this pandemic,” says Byron Woods.
According to Byron Woods, Gold, currently is the best value vehicle that investors can bank on to secure their wealth. He says the price of gold has increased by more than 34 percent in 2020 as investors rush to secure their wealth after the shocks from Covid-19.
“Covid-19 has affected so many businesses. Many investors are rushing to secure their investments into the US dollar and gold. This is because gold is safe, it is risk-off and investors always have confidence in it,” said Byron Woods.
Mr. Byron Woods was speaking during a live Webinar session organized by the Absa Bank of Kenya to talk about investing in gold and hedging against the market fall with gold investment.
On 29th March 2017, Barclays Bank Kenya (now Absa Bank Kenya PLC) launched and listed the Absa NewGold ETF on the Nairobi Securities Exchange through the Absa Financial Services as the first and only product in Kenya through which institutional and retail investors can securely invest directly in gold bullion, with the added benefit of minimal administrative fees.
Kenya became the 7th market within the Absa Group family to launch this exciting proposition, which, valued at approximately USD 1.4Billion is the largest Gold ETF in Africa and the 8th largest in the world.
The NewGold ETF was first listed in South Africa in 2004 as the 3rd gold ETF in the world. The first gold ETF was launched in the US in 2003. Compared to traditional methods of purchasing and selling actual gold, ETFs offer a cost-effective way to get exposure to these precious metals.
“An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds.,” , CEO of NewGold Issuer at Absa’s Corporate & Investment Banking division.
“An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds.,”@MgwabaMichael, CEO of NewGold Issuer at Absa’s Corporate & Investment Banking division #AbsaWebinars #KeepGrowing
— Absa Bank Kenya (@AbsaKenya) August 11, 2020
The liquidity on the NSE is underpinned by the liquidity in the ‘over-the-counter’ (OTC) gold markets. Absa Financial Services is the market maker for NewGold. It trades in the same manner as normal equity security and is Kenya Shillings (KES) denominated. The NewGold ETF price is based on the KES equivalent of the prevailing international market price of gold (in USD).
“We have noted renewed investor appetite for listed ETFs. For instance, on 31 March 2020 the Absa New Gold ETF recorded an all-time high turnover of 66 million shillings, an 8.15 percent contribution to overall day’s turnover of 804 million shillings- the highest since its listing,” said the NSE.
Each NewGold security is equivalent to approximately 1/100th of an ounce of gold which is held in a secure depository on behalf of investors and is backed by physical gold. Its value is dependent on the fluctuations in the underlying currency price of gold bullion.
Mr. Geoffrey Odundo, the CEO of Nairobi Securities Exchange says investing in gold is one of the ways that will secure investors as compared to investing in other companies. “When you invest in ETF, you are investing in gold indirectly. It means you are investing in gold that is stored somewhere whose value remains high and relies on global prices.”
According to Mr. Odundo, the price of gold is not affected by the local currency.” “Having an ETF has given Kenyans an opportunity to invest in Gold.” The value of gold is measured in terms of dollars and, therefore, relies more on the performance of the dollar. “Gold is a stable asset with no volatility and can operate and survive through hard economic times like recessions” Mr, Ddundo. “Gold is an asset that provides a platform for diversification, in the last 1 year we have seen the good performance, we expect more going forward.”
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.
“In this uncertain times, Gold despite being a non-yielding asset, its price value would remain unchanged as compared to other assets whose price value keeps on shifting; ” @, Executive Director, Global Markets at Standard Investment Bank.
“In this uncertain times, Gold despite being a non-yielding asset, its price value would remain unchanged as compared to other assets whose price value keeps on shifting; ” @_NahashonMungai, Executive Director,Global Markets at Standard Investment Bank #AbsaWebinars #KeepGrowing
— Absa Bank Kenya (@AbsaKenya) August 11, 2020
For the last 3.5 years, the price of gold has appreciated 82 percent from 1,150 shillings an ounce to 2,100 shillings. Its year to date performance stands at 42.8 percent outperforming both the NSEASI which is down -27.5 percent.
This rally in gold prices is being driven by demand for a safe haven asset amid growing concerns about a slowdown in the global economy and geopolitical instability.
At 42.8% return, gold now ranks as the best blue-chip stock at the NSE, outperforming top performers like Safaricom which is down 12.6% year-to-date.
For the first time ever, gold prices topped $2,000 in August 2019 as risk-off sentiment grows. A Financial Times report estimates that investors put in almost $5bn in gold due to the rising political risks.