Gold investment door opens at NSE with exchange traded funds listing

Kenyan investors can now bet on gold as an investment option after the Capital Markets Authority (CMA) approved the listing of an exchange traded fund (ETF) that will have the precious metal as its underlying asset.

Local investors wishing to participate in the gold market have had to either trade in the commodity in its physical form (bullion) or do so through offshore markets.

The markets regulator announced on Friday that is has granted approval to South African firm NewGold Issuer (RF) Ltd to issue the gold backed ETF at the Nairobi Securities Exchange (NSE).

An ETF is a fund to which investors contribute money, which goes into buying securities that compose an index or a defined group of securities — such as banking or insurance stocks — put together.

The underlying asset can also be a commodity, such as gold. The investors will not own the asset directly, but will instead hold shares in the ETF whose value goes up or down in tandem with the value of the underlying asset.

“This ETF will allow an investor to trade with gold as an investment asset, benefitting in the price movement without having to hold actual gold yourself,” said ABC Capital corporate finance manager Johnson Nderi.

“Currently, local investors interested in gold trading are forced to buy and sell physical gold in form of bullion, coins or jewellery, which comes with attendant issues such as storage (security), and lengthy process of buying and selling. This means that they are mostly using gold as an insurance asset, rather than an investment asset.”

NewGold’s ETF was primarily listed on the Johannesburg Stock Exchange in 2004, and has subsequently had secondary listings on the Botswana Stock Exchange, Stock Exchange of Mauritius, Namibia Stock Exchange and Ghana Stock Exchange.

The CMA said that NewGold would be issuing some 400,000 gold bullion debentures, which will be listed on the main market segment of the NSE as a secondary listing.

By issuing the ETF in form of debentures, investors will essentially be lending money to the SA firm to buy the gold on which their fund will be backed.

“NewGold Issuer (RF) Limited uses proceeds from the issue to acquire gold bullion. Gold bullion held by the firm are physical unwrought gold in the form of London Good Delivery Bars,” said the CMA in a statement.

“The listing price of the ETF will be determined on the listing date based on the real time cash market values of the gold price and the real time price of the Kenya shilling.”

Reuter’s data shows that gold was trading at an average of $1,241 (Sh128,000) per troy ounce (31.1 gm) on Friday, having gained from $1151 (Sh119,000) at the beginning of the year.

This issuance will be the first under the new class of products that the exchange has been planning to introduce as it looks to add to the traditional stocks and bonds trading for investors.

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