NewGold Issuer (RF) Ltd., the Absa-run vehicle behind Africa’s largest gold exchange-traded fund (ETF), said the value of its bullion holdings fell 13.3% in the six months to September, as falling gold prices wiped about 6.24 billion rand ($377 million) off the fund.
Bullion investments dropped to 41.34 billion rand ($2.53 billion) from 47.68 billion rand ($2.80 billion) at the end of March, according to unaudited statements posted on the Nigerian Exchange on Oct. 20.
The loss fell on investors, not on the issuer. Each NewGold unit is backed by about one-hundredth of an ounce of physical gold, according to Absa.
Because of that structure, the fall in bullion value was matched by an equal fall in what the fund owes unit holders. The issuer, which earns only fees, made a profit of 42.27 million rand on fee income of 66.63 million rand and paid its owners 25 million rand in dividends.
Investors largely stayed put. The fall in holdings is only slightly bigger than the loss in gold value, which implies net outflows of about 94 million rand, or 0.2% of assets, on MoneyCentral calculations.
A rand that strengthened about 3.9% against the dollar made the decline worse in rand terms than in dollars, where it was 9.9%.
The half-year included a sharp turn in bullion.
Gold hit a record $5,595 an ounce on Jan. 28 and by Oct. 14 was 26% below that peak, Morningstar reported. In September alone spot gold fell 6.31% to $4,157.41.
In Lagos, NewGold trades far above the value of its gold. The units closed at N86,001 on Oct. 16 in very thin trading, NGX data shows.
They are up 45.8% this year, according to ngnmarket. At gold’s Oct. 21 price of $4,113.50Â and about N1,335.50 per dollar, each unit holds gold worth about N54,900. That means Nigerian buyers are paying a premium of roughly 57%, on MoneyCentral estimates.
That gap is the main risk for local holders. If Nigerian prices move back toward the value of the gold, holders could lose money even if gold rises. Further falls in gold, a stronger rand and thin trading on the NGX add to the risk.
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