On the Nairobi Securities Exchange (NSE), the New Gold ETF price rose to the highest level since listing last week. This is due to the rise in global demand of Gold ETF as the dollar has lost its premium value.
Market players have said they need to hedge portfolios because of the uncertainty that has also contributed to the demand for gold.
On the NSE, the Gold ETF went up from Sh1,805 on Tuesday to Sh1,835 on Wednesday. It remained at the same price on Thursday, – which was also a historic high.
Globally, the gold ETF sector is doing well, recording its largest-ever inflows in the first five months of 2020. The spot gold was traded at $1,811.51 per ounce last Thursday. This figure comes close to the historic high of $1920.30 recorded in August 2011.
“The rise in the price of gold has come following the loss in the premium value of the dollar. The loss of dollar value being that the US Federal Reserve has effectively printed money and increased dollar liquidity.
According to Tim Janot, another reason is that interest rates on the dollar are low. This is unlike when they were relatively higher, and the currency served as a safe haven. Tim is a senior forex dealer with Mansa-X, the global markets division at Nairobi-based Standard Investment Bank.
He also said the high demand for gold assets has to do with the need to hedge on the risk in the equities market. “As you see more trading on the equities, you also see hedging taking place through gold trading”.
Rise of the Gold ETF in Kenya
In Kenya, the rise in the price of gold ETF came against the background of a fall in prices of the other counters. As evidenced, the fall of the NSE 20-Share Index by 32.94 points in a single day on Wednesday and by another 14.17 points on Thursday, leaving the index at 1907.82.
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Even before last week, the escalation in the price of the ETF has been contrary to the general trend on the NSE this year and in the last 12 months. While most of the counters NSE has been gripped by the bear with the indices at 2003 levels, the ETF has only moved up.
Growth in 2020
Inflows from January to the end of May shattered the previous 2016 record of US$24 billion. It also ballooned ETF holdings to an all-time high of 3,510 tonnes. In May, 154 tonnes of the metal were added to gold-backed ETF holdings. That was a US$8.5 billion increase month-over-month and it brought the year’s total to US$33.7 billion.
But while 2020 has seen high activity, it is important to note that gold ETFs have seen a steady upward trajectory in investment demand for the last five years. A major reason for this is the global growth of the ETF market. Also, the acceptance of using ETFs to gain exposure to gold, particularly in Europe is another reason.
More growth ahead for gold ETFs
According to Adam Perlaky of World Gold Council (WGC), seasonality is not an issue when it comes to gold ETFs. “If you look back historically, since gold ETFs came out in 2003, the total number of months with positive inflows in the first half of the year (are nearly the same as) the second half of the year,” he said.
Despite the historical data, 2020 has been an unprecedented year. Perlaky cited the economic impact of Covid-19 as potential drivers for gold investment demand during the second half of 2020. Geopolitical relations, social unrest, staggering unemployment rates, the November presidential election are also cited as potential drivers for gold investments.
In the global markets, the uncertainty around the impact of Covid-19 in major economies has been a key factor. Investors are running to the safety of gold, considered a safe haven in recessionary conditions.
In the global markets, the uncertainty around the impact of Covid-19 in major economies has been a key factor. Investors are running to the safety of gold, considered a safe haven in recessionary conditions.
