Gold-backed ETF at Nairobi bourse gets global rally boost

Investors in the gold-backed exchange traded fund at the Nairobi Securities Exchange (NSE) enjoyed a big increase in the value of their holdings last year following a sharp rise in the global price of the precious metal.

Gold at NSE is traded under the Absa New Gold exchange traded fund (ETF) whose price is derived from real-time value of gold in the world markets.

The price of the ETF increased by 34.4 per cent to Sh1,975 at the close of last year from Sh1,470 in January 2020. It traded 152,400 units in the 12 months to December 31, compared to 2,600 units in 2019.

The ETF was listed in June 2017, at Sh1,150 per unit.

Gold’s status as a safe haven investment at times of economic shock was evident last year, as uncertainty hit stock markets and the dollar became volatile due to Covid-19 disruptions.

Globally, the gold price has risen by 27.8 per cent in the last 12 months to $1,942 (Sh212,650) per troy ounce (31.1 grammes).

“Unlike shares, gold thrived during the time of uncertainty. The low returns on other assets saw many investors take stance on the ETF,” Absa Bank Kenya senior equity trader Eric Malachi said.

Some investors turned to the gold-backed ETF from March to hedge against lower returns from equities.

Last year, blue chip counters endured a price erosion due to the economic difficulties caused by Covid-19, with the NSE 20 share index falling by 29.6 percent in 2020.

Positive news on Covid-19 vaccine could, however, see the price of the ETF ease. In November, when the first reports of a vaccine breakthrough were made, the price of gold dropped to $1,853 (Sh202,904) per ounce. ‘’There is still uncertainty on pandemic recovery which would support the price. If the vaccines are successful, then the price will likely ease down,” said Mr Malachi.

Genghis Capital head of research Churchill Ogutu however said while the likelier scenario is that gold — and in extension the ETF — will continue to trade within range, there is some upside bias in the price.

“The discovery of the vaccine, a positive event, will not be devoid of some bumpiness ahead. This will bolster the upside in gold which is deemed a safe-haven asset,” said Mr Ogutu.