Mr. Kwabena Nyarko, a Financial Market Analyst and the CEO of Pipliquidator Fx has fully backed the second new gold-backed ETF, noting that the move could significantly influence the local financial market.
Mr. Kwabena Nyarko in an interview with the Vaultz News averred that the new gold-backed ETF will provide Ghanaian investors with an additional diversification option.
“Gold is traditionally seen as a safe-haven asset, especially during times of economic uncertainty. By offering another gold-backed ETF, the GSE is allowing investors to diversify their portfolios, potentially reducing risk. This diversification is crucial for investors looking to hedge against inflation, currency fluctuations, and other market risks.”
Mr. Kwabena Nyarko
Mr Nyarko made these comments in reaction to the Managing Director of the Ghana Stock Exchange (GSE), Abena Amoah, who disclosed at the recently held African Financial Markets Seminar in South Africa that the Ghana Stock Exchange (GSE) is set to see the listing of its second gold-backed exchange-traded fund (ETF) this year.
According to the analyst, this upcoming ETF, to be backed by the Minerals Income Investment Fund (MIIF), represents a strategic effort to enhance the GSE’s offerings and attract more investment.
“The first gold-backed ETF on the GSE, supported by ABSA, has already set a precedent with its notable performance, and the introduction of another such financial instrument underscores a growing interest in gold investments.”
Mr. Kwabena Nyarko
Boosting the GSE’s Profile
Mr Nyarko highlighted that the GSE’s profile on the global stage could be significantly enhanced by the introduction of the second gold-backed ETF.
“As the first gold-backed ETF by ABSA has already garnered attention, the launch of a second ETF highlights the GSE’s capability to support sophisticated financial instruments. This development positions the GSE as a competitive and attractive market for both local and international investors, potentially drawing more listings and trading activity.”
Mr. Kwabena Nyarko
In the intervening time, Ghana is one of the leading gold producers in Africa, and the mining sector plays a crucial role in its economy. Mr Nyarko explained that by listing another gold-backed ETF, the GSE can help channel more capital into the mining sector. “The involvement of the MIIF, a state sovereign wealth fund based on natural resources, underscores the strategic importance of this ETF.”
“The proceeds from the ETF could be reinvested into the mining sector, fostering further development and potentially leading to increased gold production.”
Mr. Kwabena Nyarko
Enhancing Market Depth and Liquidity
According to Mr Nyarko, one of the immediate benefits of introducing a second gold-backed ETF is the potential increase in market depth and liquidity.
The existing ABSA-backed gold ETF, with 2.9 million issued shares priced at GHS 345.50 and a market capitalization of GHS 1 billion, has already demonstrated substantial investor interest.
“The addition of the MIIF-backed gold ETF will likely attract further investment, not only from local investors but also from international ones. Increased liquidity can lead to tighter bid-ask spreads, reduced volatility, and more efficient price discovery on the GSE.”
Mr. Kwabena Nyarko
Potential Challenges
While the introduction of a second gold-backed ETF holds many promises, it is not without potential challenges. The analyst noted that market saturation could be a concern if investor demand does not meet expectations.
“The GSE and MIIF must ensure transparency and robust management of the ETF to maintain investor confidence. Regulatory oversight will be crucial to safeguard against market manipulation and ensure the ETF’s success.”
Mr. Kwabena Nyarko
Meanwhile, the Managing Director of the GSE, Abena Amoah, mentioned that MIIF plans to list its gold ETF on other exchanges following its initial listing on the GSE.
This ambition, according to Mr Nyarko, suggests a broader strategy to integrate the Ghanaian financial market with international markets, potentially increasing cross-border investment flows. “If successful, this could lead to a more interconnected and resilient financial system in Ghana”.
The first and currently listed gold ETF on the local bourse is the ABSA-backed gold ETF with 2.9 million issued shares priced at GHS 345.50 with a market capitalization of GHS 1 billion.
Gold-backed ETFs are financial instruments that are designed to track the price of gold. Each share of a gold ETF typically represents a fixed amount of gold, providing investors with exposure to gold prices without the need to physically own the commodity.
These ETFs are traded on stock exchanges, allowing investors to buy and sell shares with ease. The introduction of a second gold-backed ETF on the GSE indicates a maturing market and increasing investor interest in commodities, particularly in precious metals.
Originally, the MIIF Gold ETF was to be listed on the GSE in September 2023 but has been delayed to this year with the GSE MD confident of the listing taking place this year.
The ETF Is expected to provide portfolios and Pension Funds with options away from government securities.
The listing of a second gold-backed ETF on the Ghana Stock Exchange is a significant milestone that can enhance market liquidity, offer diversification opportunities for investors, and boost the profile of the GSE. Supported by the MIIF, this ETF reflects Ghana’s strategic efforts to leverage its natural resources for economic development. While challenges remain, the potential benefits for the GSE and the broader economy are substantial. As Ghana continues to develop its financial markets, the success of these gold-backed ETFs will be a critical indicator of progress and potential.
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