Stronger shilling takes shine off gold listing on NSE
A stronger Kenya Shilling has seen the price of the NSE listed ETF hit by at least 21 percent mirroring the lower returns for gold investors at the local bourse.
Gold has had a bullish 2024 with the price of the precious metal rallying on the back of renewed geopolitical tensions including escalation of conflict in the Middle East.
As of December 17, the gold spot which refers to the price at which gold is bought and sold at was up 26.82 percent on a year-to-date basis with the cost of gold sitting at Sh341,886.71 ($2,644.34) per ounce or 28.34 grams.
The stellar year for gold is however masked at the Nairobi Securities Exchange (NSE) with the Absa New Gold ETF only up 11.8 percent on a year-to-date basis where a unit trades at Sh3,260 from Sh2,915 at the end of 2023.
Absa New Gold ETF is a listed investment product, which tracks the performance of the gold spot market and trades on the NSE like an ordinary share.
The gold ETF has tracked the price of gold as expected in US dollar terms, recording a performance of 24.51 percent as of December 17.
A stronger Kenya Shilling has however seen the price of the NSE listed ETF hit by at least 21 percent mirroring the lower returns for gold investors at the local bourse.
The price of the Absa New Gold ETF is usually expressed in dollars but is translated into Kenya shillings for local reporting purposes with each unit of the ETF corresponding to approximately 1/100th of an ounce of gold or 0.28 grammes.
“We did see a strengthening in the exchange rate in Kenya and this is obviously translated into a 21 percent weakening of the price of the New Gold ETF as it priced in USD which requires converting into Kenya shillings. However, the metal did see significant gains over the year and that’s translated into the final price of the ETF,” said Tito Namu, a Senior Equity Dealer at Absa Securities Limited.
The return on the Absa New Gold ETF has trailed the average return from the NSE this year with the Nairobi All Share Index (NASI) boasting of a mean return of 29.2 percent as of December 17 with the index rising to 119.08 points from 92.11 points at the close of 2023.
The ETF began trading on the NSE in 2017 when the product then known as the Barclays New Gold ETF listed 400,000 units at the price of Sh1,205.16 each.
The ETF, which is the largest in the region, has offered investors in Kenya and within East Africa to diversify their investments beyond just stocks and bonds.
Absa says its gold ETF is one of the simplest and cost-effective methods for investors to invest directly in actual gold with the units being fully backed by physical holdings of the metal or gold bullion at a custodian bank-ICBC Standard Bank.
Despite the strong demand for gold at the spot market, Absa’s New Gold ETF counter has seen muted interest from investors even as the precious metal continues to prove itself as a haven in the face of market volatility.
The limited turnover of the ETF is partially attributed to existing unitholders choosing to hold rather than sell the derivative amid an evolving macroeconomic and external environment.
“We indeed did not see much uptake this year, but we have seen more activity towards the end of the year especially among retail high net-worth individuals and some qualified institutional investors. However, investors are taking a hold view of the metal as the geopolitical scene remains extremely volatile while we see cracks in the macroeconomic environment,” added Mr. Namu.
The Absa New Gold ETF is seen as a critical product of financial innovation with benefits covering risk and portfolio diversification and ease of transactions.
Absa Bank Kenya and the Central Depository and Settlement Corporation (CDSC) stand ready to provide more gold units to market players as required, assuring that the ETF’s availability is not limited.
“The New Gold ETF is not limited in terms of liquidity. Whatever we are holding currently can be increased by simply making an order which is processed within three to five working days by Absa and the CDSC ensuring there are as many gold units as demanded,” said Tito Namu.
