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NSE investors join gold rush on global price rally
The price of gold has hit a record high of more than $4,000 (Sh516,700) an ounce as investors look for safe places to put their money over concerns about economic and political uncertainty around the world.
Local investors have joined the scramble for the gold exchange-traded funds (ETFs) at Kenya’s stock market amid a global rush for the yellow metal market that has driven prices to record levels.
The Absa NewGold ETF, which mirrors the price of gold in the global market, has surged past the Sh5,000 mark for the first time in a blistering rally that made it one of the top movers at the Nairobi Securities Exchange (NSE) this month.
Investors at the NSE can buy the listed 400,000 gold bullion debentures, each equivalent to 0.01 of an ounce of gold -- offering them access to the global yellow metal market in shilling.
The ETF closed last week with a turnover of Sh100.9 million, making it the sixth top mover at the Nairobi bourse, according to data from investment bank AIB-AXYS.
Its turnover was nearly a fifth of the Sh517.2 million that the top traded stock, Safaricom, posted in the week.
The ETF has on several days closed the day as the top mover, including last week Monday when it topped the chart with Sh95.2 million turnover, beating major stocks such as Safaricom, banks, East African Breweries, and BAT Kenya.
This contrasts with a lukewarm performance in previous years, which saw the gold-backed asset at the NSE go for days without a single transaction.
Analysts reckon that local investors are behind the rally of the ETF at the Nairobi bourse.
“Foreign investors have been selling, most likely for profit-taking and therefore driving volumes as locals purchase. Since the index tracks the index of gold, foreigners have been exiting their positions at the price of gold,” said Wesley Manambo, a senior research associate at Standard Investment Bank.
“Ideally, the ETF hardly trades but has seen increased turnover over the past three weeks as the upward pricing continues. Foreigners are taking advantage of this to book gains.”
The ETF crossed the Sh5,000 mark for the first time on Monday, closing at Sh5,310. It has remained above Sh5,000, giving it a year-to-date gain of 60.8 percent from Sh3,165 in January.
Over the past six months, ETF has seen a 42 percent rise, cementing its place as one of the top-performing assets on the NSE this year.
The price of gold has hit a record high of more than $4,000 (Sh516,700) an ounce as investors look for safe places to put their money over concerns about economic and political uncertainty around the world.
Gold has seen its biggest rally since the 1970s, rising by around a third since April when US President Donald Trump announced tariffs, which have upset global trade.
The 19 percent surge since the start of September is difficult to pin on any of the traditional drivers of spot gold prices: interest rates, inflation expectations, or fresh worries about geopolitical instability.
Instead, many observers point to a gold mania that appears to have gripped investors, large and small, who are swarming to buy gold bars and coins.
The overall strength of gold is largely the result of central banks buying it as a strategic move away from US treasuries and overreliance on the strength of the dollar.
“Investors have thus sought a haven away from the uncertainty of the US market, resulting in high demand for gold. When gold rises to an all-time high, so will the ETF at the NSE,” Mr Manambo said.
The 60.8 percent year-to-date gain shows the ETF has outperformed NSE, which has gained 39.9 percent to Sh2.713 trillion over the same period. Returns on government paper have also been falling, with all Treasury bills dipping below 10 percent.
Each unit of the ETF is backed by physical gold held in secure vaults, offering Kenyan investors a regulated way to hold the metal without worrying about storage, insurance or security.
One unit represents about one-hundredth of an ounce of bullion. The ETF’s price moves in tandem with global gold prices but is quoted in Kenyan shillings, meaning currency movements also affect returns.
There are 400,000 units of the Absa NewGold ETF in issue at the NSE, with a total market valuation of Sh1.76 billion.
The units are mainly traded by foreign and local institutional investors, who hold 64.36 percent and 27.81 percent of the issued units, respectively, with local individual investors holding 7.83 percent.
The ETF was listed on the NSE in March 2017 at an entry price of Sh1,205 per unit, making it the first derivative instrument introduced into the Kenyan bourse.
It was first listed on the Johannesburg Stock Exchange (JSE) in 2004, but has since had secondary listings on other African exchanges, including Botswana, Mauritius, Namibia, Kenya and Ghana.
