Capital Markets

Gold ETF price hits historic high amid market jitters

nse

A staff at Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

Summary

  • The price of the New Gold ETF on the Nairobi Securities Exchange (NSE) rose to the highest level since listing last week as global demand for the commodity rose given the loss in the premium value of the dollar.
  • Market players said they need to hedge portfolios because of the uncertainty has also contributed to the demand for gold as has the lower interest rates such as that offered by the US Federal Reserve for the dollar.
  • The dollar, as a result, has lost some of its traditional role of a haven for investors with the high supply of liquidity created to deal with the Covid-19 pandemic.

The price of the New Gold ETF on the Nairobi Securities Exchange (NSE) rose to the highest level since listing last week as global demand for the commodity rose given the loss in the premium value of the dollar.

Market players said they need to hedge portfolios because of the uncertainty has also contributed to the demand for gold as has the lower interest rates such as that offered by the US Federal Reserve for the dollar.

The dollar, as a result, has lost some of its traditional role of a haven for investors with the high supply of liquidity created to deal with the Covid-19 pandemic.

On the NSE, the ETF price stood at Sh1,835 on Wednesday and remained at the same price on Thursday, up from Sh1,805 in the previous trading — which was also a historic high.

Globally, spot gold was traded at $1,811.51 per ounce last Thursday, coming 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 because the US Federal Reserve has effectively printed money and increased dollar liquidity.

Another reason is that interest rates on the dollar are low unlike when they were relatively higher and the currency served as a safe haven,” said Tim Janot, senior forex dealer with Mansa-X, the global markets division at Nairobi-based Standard Investment Bank.

He said the other cause of 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,” said Mr Janot.

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 by 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.

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.

In the global markets, the uncertainty around the impact of Covid-19 in major economies has been a key factor as investors ran to the safety of gold, considered a haven in recessionary conditions.