BSE To List Gold ETF By Year End

WANETSHA MOSINYI
Staff Writer | Monday August 31, 2009 00:00

 

Absa Capital officials were on Thursday upbeat about secondary listing of the NewGold Gold Bullion Debentures (NewGold), which is the third largest gold ETF in the world.

'We are quite encouraged by the reception we got from institutional investors,' Absa Capital associate principal Dr Vladimir Nedeljkovic said at a media presentation at the BSE.

NewGold is the largest listed ETF on the Johannesburg Stock Exchange (JSE).

Nedeljkovic said NewGold would offer local institutional and retail investors an opportunity to invest in gold in a cost effective, secure and efficient way.

Developed in association with the World Gold Council, NewGold represents a new asset class for BSE investors and a unique investment opportunity.

'It is low risk investment, an excellent preserver of wealth and an important component of any investment portfolio,' he said.

NewGold Gold Bullion Debentures are securities backed by the physical gold-bullion. Each NewGold Debenture is initially valued at 1/100 of one fine troy ounce of gold.

BSE product development manager Thapelo Tsheole, however, said for  the gold ETF to be listed, they must meet certain regulatory requirements, including securing agreement with a local partner.

'We are still to find what the Minerals Act says about locals holding a gold bar,' he said.

Another hitch, is the availability of a local partner like an investment bank or brokers, which is needed to make NewGold to be clarified as a local asset.

'It's critical to have the ETF classified as a local asset and we are already in discussions with some of the the asset managers and brokers to come on board. These are technical issues but we don't expect them to be show stoppers, ' Nedeljkovic said.

Although the BSE's market capitalisation is comparatively high, liquidity is extremely low and one of the reasons for this imbalance has been identified as the lack of instruments to draw out liquidity in the market.

Tsheole said the gold ETF would help bring back some of the massive capital, which fund managers export to foreign markets.

Botswana fund mangers export 70 percent of capital under their management.  'The BSE want some of the foreign capital gravitating this way and the gold ETF will offer an option on investing such funds.'

Proponents of the commodity, argue that gold is a store of value, hence in the long-term, the gold price has outperformed inflation significantly.

Nedeljkovic said gold is a relatively low-risk investment and its returns are significantly less volatile than the returns on gold equities. Research shows that gold securities should constitute between five percent and 10 percent of an optimal investment portfolio.

Historically gold has always retained value and proved it is a safe haven investment in unsettled times, like during the current global recession, in that gold prices remained bullish when all other commodities plummeted to the lowest levels.