Rich pickings for gold ETF investors

MBONGENI MGUNI
Staff Writer | Friday September 17, 2010 00:00

On Tuesday, the gold price hit record territory for the year at US$1 269 (P8 667) per ounce, from US$1 126 when the gold ETF listed on the Botswana Stock Exchange (BSE) on July 13. Experts believe the gold price could end the year at US$1 300 and beyond, driven by a variety of factors.

Chief among these is the gold's status as a safe haven for investment in financially unsteady times. With continuing uncertainty about a sovereign debt crisis in Europe and the US dollar sliding as an asset class due to unstable American recovery, investors are moving their funds towards gold, driving the precious metal's price higher. Goldman Sachs, a global investment banking and securities firm, predicts that gold will end the year around US$1 350 per ounce based on low worldwide interest rates. Canaccord Adams, a Canadian banking group, estimates that the metal will end 2010 on US$1 425 per ounce based on the fact that the global stimulus packages are devaluing currencies and gold has become a popular way to hedge and invest.

For local gold ETF investors, the projections will come as icing on the cake in a year in which interest in the unique asset class has peaked. The gold ETF, sponsored by ABSA Capital, tracks the price of gold and is supported by physical gold assets. One security or unit of investment in the ETF is equivalent to one one-hundredth of a gold ounce.

On Wednesday, BSE Product Development Manager, Thapelo Tsheole, said since its listing, total volumes of gold ETF securities traded have numbered 1.396 million with a total value of P115 million. This translates to an average of P2.6 million worth of transactions per day.

'We are very pleased about the performance of the ETF,' Tsheole said. 'Thus far, the only concern is the need to bring in more retail investors, as currently, institutional investors are mainly trading in the ETF.

'However, we are also seeing a lot of individual investors coming onto the market. We once had someone coming through to buy two units. This is very pleasing because that person came all the way from their home to buy two units and we are still seeing more coming! Education is the key for this type of investment.'  Tsheole said the ETF had thus far met the BSE and ABSA Capital's expectations. 'ABSA Capital are actually looking forward to listing more products on the BSE, as a result,' he said.

The BSE being its secondary listing, the gold ETF is South Africa's largest ETF and the third largest in the world. Unlike shares which can only be bought from a minimum of 100, the gold ETF is sold from a minimum of one unit.