Kenyan investors turn to gold: A rising safe haven in volatile markets

The increasingly volatile nature of global financial markets is making investors worldwide look for more stable and secure places to invest their funds to secure assets that can preserve their wealth.

One growing trend is turning to gold, which is what a growing number of investors has started to do in Kenya. What gold can bring is wealth preservation and growth, as it has long been considered a safe-haven asset. Recent developments in the Kenyan financial landscape have made gold trading more accessible to local investors. 

The growing demand for gold in Kenya

Both local and global factors have resulted in a growing gold market in Kenya over the past few years. According to The Observatory of Economic Complexity, Kenya exported $191 million in gold, which is a huge growth compared to previous years. The growth in exports has been fueled by rising gold prices on the international market, coupled with an increase in local production and a huge interest in investing in gold as a hedge against economic uncertainty. 

Another reason for the rising demand for gold in Kenya is related to the global economic climate. Geopolitical tensions, inflationary pressures, and the weakening of some of the world's major currencies is making gold a more attractive investment, especially since it is a way to diversify portfolios.

Specifically for Kenya, a growing middle class has resulted in increased financial literacy and access to digital trading platforms, which is also important factors in the rising interest in gold trading. 

Understanding the gold trading market in Kenya

There are various channels through which the Kenyan gold market operates. These include physical gold trading, gold ETFs (Exchange-traded funds), and gold futures.

Physical gold trading refers to buying and selling gold bars, coins, and jewelry. This is still a prominent way to trade gold, however it is associated with high transaction costs, storage challenges, and security concerns. Gold ETFs is both a more accessible and cost-effective way for Kenyan investors to gain exposure to gold.

By trading on the Nairobi Securities Exchange (NSE), investors can use these funds to gain a stake in gold, but without having physical ownership. Because you avoid having to deal with the complexities of storing and securing physical gold, this form of investment is appealing to many. 

Gold futures trading is yet another avenue leveraged by investors. This involves speculating on the future price of gold, with contracts that can be bought and sold on various trading platforms. These types of investments do carry higher risks, because even though they can offer substantial returns, the market volatility and the leverage involved in such trades are risky. 

The role of the Central Bank of Kenya and government regulations

To regulate the gold market, the Central Bank of Kenya (CBK) is playing a crucial role, as it holds gold as part of its foreign exchange reserves. Furthermore, the policies of the bank can influence the local gold market. Within the past decade, CBK has been increasing its gold reserves, which is a reflection of the high confidence it has in the metal's value as a reserve asset. As of the first quarter of 2024, the gold reserves in Kenya are at 0.02 tonnes. 

Another factor impacting the gold trading market is government regulations. With the Mining Act of 2016, measures were introduced to formalize the artisanal and small-scale mining sector. The Act governs the exploration, mining, and trading of minerals, also including gold. Both artisanal and small-scale mining constitutes a large portion of the gold production in Kenya. Formalising this sector is an attempt to increase transparency, reduce illegal mining activities, and boost revenues from the gold industry. 

Strategies to master gold trading in Kenya

If you as an investor is interested in gold trading in Kenya, it is important to have an understanding for the market dynamics and to adopt effective strategies for your investments. One important aspect is to ensure to diversify your investment portfolio.

If you spread out your investments on different assets, including gold, stocks, bonds, and real estate, you are reducing the overall risk of your investment. Gold is often a popular addition to a diversified portfolio as it tends to perform well during periods of economic instability. 

Another important factor is to stay aware of global trends. Gold prices are directly influenced by global economic conditions. By staying informed about interest rates, inflation, and geopolitical events, you can stay on top of the potential impacts it might have on gold prices. It is also important to understand market volatility.

Various factors can influence gold prices, which means you should prepare yourself for short-term price fluctuations. For this, it is recommended to focus on the long-term trends. 

Concluding remarks

The gold trading market in Kenya continues to evolve, providing great opportunities for investors to increase their wealth. Through digital platforms, trading with gold has become more accessible, and coupled with a rising demand and supportive government policies, gold trading continues to be an attractive option for investors.

Applying risk management strategies and understanding the market dynamics are key requirements to ensure a successful experience with gold trading in Kenya.