The Nairobi Securities Exchange (NSE) witnessed a historic surge in the prices of gold exchange-traded funds (ETFs), with the Absa New Gold ETF unit price reaching an all-time high of Sh2,840. This remarkable escalation is attributed to the emergence of new geopolitical tensions on the global stage.
In a remarkable climb, the Absa New Gold ETF unit price surged from Sh2,530 within a span of just one week, closely reflecting the upswing observed in the international gold market. This market’s gold spot price has scaled heights reminiscent of the early stages of the Russia-Ukraine conflict in early 2022.
The remarkable uptick in gold prices is a direct response to investors seeking refuge in safe-haven investments beyond traditional government securities, including US Treasuries. This shift in investment patterns is driven by growing concerns about the potential for an escalation of conflicts in the broader Middle East region.
The underlying asset in the trading of the gold ETF is gold itself, and as a result, the prices of gold at the NSE have risen in parallel with global market trends.
Wesley Manambo, an analyst at Standard Investment Bank, commented on this trend, stating, “From my vantage point, I see the uptick in Absa Gold Price as a response to movements in the gold commodity that’s pricing in the compounded geopolitical risks on the developments in the Middle East. The uptick in price is in response to a likely rise in demand and the ETF adjusting to gold trends.”
Manambo added, “When faced with such (geopolitical tensions), investors often run to preserve purchasing power because of the ripple effects involved including disruptions in the supply chain and stubborn high freight fees.”
Investors participating at the NSE have the opportunity to purchase listed gold debentures, with each debenture equivalent to 0.01 of an ounce of gold through the ETF.
On the global scale, spot gold traded at $1,982.96 (Sh297,000) per ounce as of Friday, underlining the international relevance of this price surge.
The Absa New Gold ETF primarily operates as a lower turnover counter, indicating that investors are holding onto these assets, in contrast to the selloffs witnessed in both equities and bond markets.
The ETF’s price is intrinsically tied to the prevailing gold price, allowing debenture investors to reap price gains without necessitating a trade.
The Absa New Gold ETF initially debuted on the Johannesburg Stock Exchange in 2004, later securing secondary listings in markets including Botswana, Nigeria, Mauritius, Namibia, and Ghana.
Trading of these debentures commenced at the NSE in 2017 when the then Barclays New Gold ETF introduced 400,000 units at a price of Sh1,205.16 each.
As of May 2023, the ETF’s majority ownership lay with foreign investors, representing 89.88 percent ownership of 280,600 units. Local individuals and institutional investors held 3.68 percent and 6.44 percent of the ETF, respectively.
The latest surge in gold debenture prices recalls a similar occurrence in March, spurred by banking issues related to the Silicon Valley Bank’s collapse in the United States and the crisis at Swiss lender Credit Suisse, rekindling fears of a new global banking crisis.
Photo – Jackson Okoth
By: Delino Gayweh
Serrari Financial Analyst
26th October , 2023
