Investors can now gain some exposure to gold through the Investec’s new exchange traded note (ETN) over the US Dollar (“USD”) Gold price. The Investec Gold ETN was listed on the main board of the Johannesburg Stock Exchange (JSE) last week under the Exchange Traded Products sector.
“This new investment product is unique in that it offers investors an opportunity to invest in the movements in the US$ price of gold without having to also factor in the volatile Rand,” said Brian McMillan of Investec Structured Products.
What is an ETN?
Simply put an ETN is an investment product that gives investors access to a specific asset class or index. By closely tracking the underlying gold price as fixed in London daily, the Investec Gold ETN gives investors the ability to trade a product in Rand while closely tracking the percentage moves of the USD gold price. For example, if the price of gold is at $1750 per ounce in London, the ETN will trade at R175.00 (1/10th of an ounce) and as the price of gold moves to $1850, the price of the ETN will rise to around R185.
“Previously investors had no choice but to hedge out the effects of the Rand if they wanted pure gold exposure. Historically the gold price and the Rand have been negatively correlated and using existing gold products many investors found that though they had made significant gains in the gold price, on many occasions this was negated by the Rand’s move,” said McMillan.
Quentin Allison of the Investec commodities desk added: “Gold has been a great investment over the past decade, with the Fed’s commitment to open-ended quantitative easing being hugely supportive for gold returns in recent times. Gold has also proven its portfolio diversification benefits once again in the most recent financial crisis, with central bank as well as institutional demand being extremely supportive on the demand side.”
Is gold good?
“The Rand and Gold price have exhibited a historical negative correlation, whereby the rand has tended to strengthen when gold prices have been escalating, and thereby offsetting returns. We believe that there is an investor base out there that requires a pure fundamentally based gold investment without the contamination effect of rand/dollar currency volatility,” he added.
The Investec Gold ETN will be issued under the JSE code “GOLDEN” and investors can purchase via their stockbrokers or online accounts. Investors can also contact Brian McMillan or Quentin Allison on (011) 291 3180.