Wednesday, 22 April 2020

“Gold is a way of going long on fear,” renowned investor Warren Buffett once said. 

The Berkshire Hathaway CEO explained that if people “become more afraid, you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.” 

Investors’ fear levels are particularly high right now, as the coronavirus pandemic turned a global health crisis into an economic one. And it’s uncertain when the world will recover from either of these crises. 

It is in such times of uncertainty that gold is touted as a “safe haven” for those looking for shelter from more traditionally volatile investments, like stocks. 

“Compared to an investment in stocks, where even the biggest blue chip companies can (and have) failed, an investment in gold often seems less risky,” said Adam Vettese, market analyst at investment platform eToro. 

A reliable store of value 

As the world’s earliest form of currency, gold’s physical properties have meant it has long been considered a reliable store of value. It is widely available enough to trade but is in finite supply, so is rare enough to be considered valuable and unlike some metals it is not corrosive, making it durable. 

The price of gold, which is normally in dollars, moves in the opposite direction to the greenback. This is because if the U.S. currency gains in value then it takes fewer dollars to purchase an ounce of gold. 

This was why the gold price went into meltdown last month, explained Vettese, because the dollar rallied. As a result, the spot gold price, the cost at which the precious metal can be instantly traded, fell below $1,500 per ounce for the first time in 2020. 

As the coronavirus crisis deepened in March, Vettese said that risk-averse investors initially flocked to cash. 

Last month’s fall in the gold price was also thought to be due to investors being forced to sell the metal and take profit from its gains, in order to cover losses elsewhere, otherwise known as a “margin call.” 

However, when the U.S. Federal Reserve cut interest rates to zero later that month, there was less incentive to hold dollars. 

Cutting interest rates meant the already low returns that investors received from investing in debt, or bonds, were nudged even lower. 

Gold has since therefore regained its popularity, with the price climbing back up to its highest point in nearly seven years last week, at $1,769 per ounce. 

A shorter supply of the precious metal has also bolstered its price, pointed out Sheridan Admans, investment manager at U.K. stockbroker The Share Centre, as the virus has forced mines to close.

Gold is also considered a good hedge against the risk of inflation because the rising cost of goods and services tends to erode the value of the dollar. 

And as central banks print more money as part of attempts to stimulate economies, Global head of Asset Allocation at investment group Invesco Paul Jackson said some may fear this could result in inflation.

If this were the case this could impact the value of other assets. Meanwhile, “gold over a long period of time tends to hold its value in real terms” so can be considered as a “refuge” against this risk.

High entry point

Jackson referred back to Buffett’s point, however, that people’s main reason for investing in gold was for protection because it does not pay a dividend or interest so “you could also lose money if what you are fearing doesn’t come to pass.”

He added that the gold price has historically been as volatile as the stock market and that the “downside can also be quite dramatic.”

Jackson also pointed out that the price of gold is historically high, as the long-term average price is around $600 to $700.

This is “not to say that the price won’t go higher in the right circumstances” but that the “entry point today is quite high,” he said.

Ways to invest

While people can invest in physical gold “there is likely to be a huge mark-up” on the price of coins, bars or jewelry, said Admans.

Finding a way of storing it safely, as well as finding a market to trade it through, can also be costly, he added.

Buying shares of the companies mining gold was another way to invest. Jackson said this could act as a “leveraged play” on gold, as if its price goes up, the profits of the mining company go up even more, potentially boosting returns.

“The problem at this moment in time, when we’re looking at a corporate sector around the world that is under a lot of stress … you’re taking (on) all that equity risk in a way that you don’t when you buy the underlying asset,” he said.

Exchange-traded commodities (ETCs) are often considered as the next best thing to owning physical gold, said Admans. ETCs are an investment vehicle traded in shares on an exchange, which tracks the underlying pricing index of that commodity.

Meanwhile, funds can combine these different types of exposure to gold, making it “perhaps the best way to a diversified solution,” he said.

Source: CNBC 

Published in Opinion & Analysis

South Africa’s President Cyril Ramaphosa announced an R500 billion ($26bn) stimulus package to deal with the devasting economic impact of COVID-19 and a 35-day lockdown.

He said the money would come from its adjustment budget, the Unemployment Insurance Fund and multilateral institutions.

The World Bank, the New Development Bank, the International Monetary Fund and African Development Bank have been approached for funding.

Measures introduced to assist the economy include:

  • R20 billion to assist efforts that address the pandemic.
  • R20 billion for municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.
  • A six-month temporary COVID-19 grant of R50 billion. This means that child support grant beneficiaries will receive an extra R300 in May and from June to October they will receive an additional R500 each month. All other grant beneficiaries will receive an extra R250 per month for the next six months.
  • A special Covid-19 Social Relief of Distress grant of R350 a month for the next 6 months will be paid to individuals who are currently unemployed and do not receive any other form of social grant or UIF payment.
  • R100 billion for protection of jobs and to create jobs.
  • R40 billion for income support payments for workers whose employers are not able to pay their wages.
  • R200 billion loan guarantee scheme to be introduced to help businesses pay salaries, rents and suppliers. Companies with a turnover of less than R300 million a year can participate.

A phased approach will be taken to reopen the economy of which Ramaphosa said he will address the nation on Thursday.

Credit: CNBC

Published in Economy

The world’s biggest independent oil storage company has all but run out of space for crude and refined products as a result of the fast-expanding glut that Covid-19 has created.

“The available capacity on the oil side is almost completely sold out for our terminals,” Gerard Paulides, chief financial officer of Rotterdam-based Royal Vopak NV, said in an interview. “For Vopak, worldwide available capacity that is not in maintenance is almost all gone and from what I hear elsewhere in the world we’re not the only ones.”

Vopak is racing to complete maintenance to free up whatever space it can. Worldwide oil demand has collapsed at an unprecedented speed as the coronavirus has caused a mass halt to global transportation systems and hurt economies. With producers failing to reduce output at the same pace, an oversupply of crude and fuels has quickly emerged.

“It’s extremely tough to find something in this market,” said Krien van Beek, a storage broker at ODIN-RVB Tank Storage Solutions, discussing the global situation for fuels. Companies that have their own tanks may not have filled them, but there are now barely any left for third-party hire, she said.

U.S. crude oil futures for May moved into negative territory on Monday -- meaning traders were effectively willing to pay people to take barrels. A large part of that was because of concerns about space to store.

From Indonesia to Mexico, companies are scouring the market for places to store crude oil and refined fuels, often parking unwanted supplies on tankers because shore-based facilities are full. In the North Sea, a handful of vessels have been idling with gasoline and jet fuel on board for days now.

Main Hubs

Vopak operates three main hubs in Singapore, Rotterdam and Fujairah. The company traditionally benefits from contango in oil markets where the spot price is depressed, meaning fuels can be stored for sale later at a higher price. The company said in its earnings release that the impact of contango will certainly be seen in the second quarter. Vopak is working to return four Rotterdam tanks to operations that are currently undergoing maintenance.

“All the available capacity that is in demand will be used and is used,” Paulides said.

The diesel, jet fuel and gasoline markets are all in sharp contango in Europe, the U.S. and Asia Pacific. Jet and gasoline have both suffered massive demand losses, and diesel buying has also been hit, despite its uses beyond consumer transport.

The strain on storage is also starting to create some weird shipping movements as traders send tankers on odysseys to find the best places to stash supplies. The amount of oil stored at sea has also increased to almost 250 million barrels and global floating storage is now accelerating at an unprecedented pace, Clarksons Platou analyst Frode Morkedal said in a research note Tuesday.

“You can see that the margins are phenomenal and that the spot market is going to stratospheric levels,” said Hugo de Stoop, Chief Executive Officer at Euronav, which owns crude tankers. “There are more and more ships which are being taken out of the fleet for storage purposes,” he said in an interview with Bloomberg Television.

Two tankers that were hauling cargoes of diesel-type fuel to Europe from India have now changed course and are sailing for New York, where there’s more storage available, according to two people involved in the market. At least one jet fuel tanker that had earlier signaled Europe has also diverted to the U.S.

“Under pressure is probably putting it mildly,” said Steve Sawyer, director of refining at Facts Global Energy, referring to global oil products storage. “We’re probably close to filling up.”


- Bloomberg

Published in Engineering

Tigo Tanzania launched a service that allows all Tigo Pesa customers to send and receive cash on their mobile money wallets from M-PESA in Kenya, MTN in Uganda and MTN and Airtel in Rwanda.

The service now ensures that Tigo Pesa customers are connected to all major mobile money serivces across the East African region a move that will grow transactions for cross-border remittance users.

Tigo Tanzania’s Acting Chief Officer for Mobile Financial Services (MFS) Angelica Pesha said that: ”This new service between the 4 countries further cements how Tigo adapts to its customers’ needs with digital solutions and it also means that the benefits of mobile money can be extended to cross-border trade, allowing businesses and families to transfer money quickly and securely in East Africa. This partnership further cements our position as a provider of choice for Mobile financial services and we believe this venture will increase the number of transactions for cross-border remittance users.”

“To send money to the different services, Tigo Pesa customers can dial *150*01# on their mobile phones, select send money, send out of the country,select either Kenya,Uganda or Rwanda.” Explained Pesha.

MTN Uganda has been at the forefront of financial innovation pioneering in the delivery of a wide range of financial services such as micro savings, loans, insurance and merchant payments through MoMoPay.

”To be able to make our wide network available to customers across the East African region, this is testimony to our continued drive to extend affordable, reliable, secure financial services to not only our customers in Uganda, but to all people in the region”. said Stephen Mutana MTN Uganda General Manager Mobile Financial Services

“As Mobile Money is becoming borderless, this partnership with Tigo Tanzania is part of our commitment to offer our customers within the East African Community; an option to transfer funds to their friends, families and business partners using their Airtel Money Wallets.

While receiving Money from Tigo Tanzania is free, to send Money to Tigo Tanzania, Airtel Money customer dials *500*1*3# and follows the prompts " said Jidia Gasana from Airtel Rwanda

This partnership between Safaricom, MTN, Airtel and Tigo Tanzania will enable us meet the growing demand for cross border transactions within East Africa. M-PESA has been the preferred International Money Transfer choice for many Kenyans who find the service fast, safe, affordable and convenient.

To send money to the different services, M-PESA customers can dial *840# on their mobile phones or through mySafaricom App by selecting the “M-PESA Global” option under “M-PESA” then selecting “Send”.

Published in Bank & Finance
  1. Opinions and Analysis


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