Interest rate has continued to fall while the Naira continues to depreciate. In the same way, market volatility continues with so much uncertainty that investors do not know exactly where to hide. Recent events seem to be pointing to the fact that some investors are finding some refuge in Gold and Gold derivatives. The rush or tendency to rush to gold is understandable because it has traditionally been known as a safe haven given its relative stability.
Gold price has been gaining since the low-interest rate and COVID-19 became the new normal, the world over. In India, (a country that treasures Gold more than anything else), for example, Gold price has gained about 20% since the beginning of 2020. In the thinking of one Indian fund manager, Chriag Mehta, who works at Quantum Mutual Fund, “Globally real interest rates have turned negative. The devaluation of various currencies has reduced purchasing power. This together with trade-related tensions among the US and China should support gold prices”. In Nigeria, the story is largely the same even though Nigerians are not as obsessed with Gold as Indians. But as a safe haven for investment protection and income generation, Nigerians seem to be flocking to Gold Etf in droves.
A look at the recently released NAV Summary report by the Security and Exchange Commission, SEC, for the week of June 5th 2020, indicates that New Gold ETF’s Net Asset Value increased by 144% during the first week of June, 2020 from N1.126 billion to N2.747 billion. This indication implies that investors poured in a whopping N1,502,000,000 into New Gold ETF. The same report for the week ending, June 11th 2020, shows that investors pumped in additional N5,495,000,000 to New Gold ETF, bringing total inflows to N6,997,000,000 within the first two weeks of June.
The New Gold ETF which is a gold derivative that gives investors the opportunity to invest in gold without physically buying and storing the metal has made about 50% price gain since the beginning of 2020. As at June 5th 2020, the unit price of Nigeria’s New Gold ETF stood at 7,850, an increase of N2,630 from its 2019 closing price of N5,220.
Unfortunately, gold prices retraced their step during the week of June 11th, leading to a price reduction to N7,400 for New Gold ETF. This price decrease led to a loss of about N353 million, so far in June. With so much money going into the ETF, its Net Asset Value which stood at N769,500,002 now stands at 7,770,000,001 as at June 11th, which is a growth in net asset value of 910%. That makes it the highest growing fund in Nigeria, in 2020. Whether it maintains that momentum is any body’s guess but if the trends in exchange rate and interest rate continue, the likelihood of more investors taking refuge in gold derivatives like the New Gold ETF will increase.