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Money &Markets

INSTRUMENTS

The golden allure for investors


Countries that rely on the precious metal count their losses as the price of gold plummets
BY AKINYI JOSEPH 15% drop in the price of an asset over a 2 week period is one that would leave any investor economy trembling. But the drop in the international price of gold from Sh 4,800 per gram to Sh 4,200 per gram (as at 23rd April) has had little eect on the Kenyan economy. It has hit countries like China, South Africa, India, Australia, the Congo and a city like Dubai renowned for its gold exchange the hardest since they either produce gold or use it in local manufacturing. Kenya has been prospecting for gold at its Migori, Kuria West and Nyatike mines in South Nyanza since 2009, but is not yet a producer. China and India are acknowledged to be some of the higher consumers of the precious metal. While China uses a substantial amount of adulterated gold in the components of its electronics sector - valued because it is a poor conductor - India consumes large quantities in its marriage trade. A poor family in India uses at least ten tolas (120 grams) in each marriage while there is no limit to the amount used in the more extravagant wedding ceremonies. In the United States, gold is consider to be a stable investment in a time of international recession, and is preferred to instruments like real estate and mutual funds since it is insulated from inationary pressures. The ordinary American investor plows an unknown amount into government minted coins, publicly traded commodity funds, mining company stocks and physical bullion. With the recent drop in price of gold, the vault of the Federal Reserve Bank of New York, the worlds largest trove of gold, experienced a $75 billion loss in value. In Kenya, the precious metal is not traded legally and few people wear gold because of
| Nairobi Business Monthly May

Ethiopia however stands out in the East African region as a country where gold is traded in street kiosks. West Africa too is home to a bustling trade in gold jewellery.
security concerns. Today most of the jewellery in Kenya comes ready made from Dubai, said Mr B Shah, a local dealer with over 30 years of experience in precious metals and stones. He remembers a time, shortly after independence, when street vendors would manufacture gold chains on Biashara Street, and over 50 jeweller shops lined River Road in downtown Nairobi. Rising insecurity however put an end to the trade and today the sole jeweller shop on River Road is Nagin Pattni.

During the colonial days, gold biscuits were legally traded in Kenya through over the counter purchases at local banks, said Mr Shah. Today, some Kenyans continue to invest in biscuits that are purchased from gold havens like Dubai, but they are not legally traded here as they are elsewhere in the world. In Switzerland, for instance, a square of a gold biscuit (akin to a Cadburys bar) is broken o and can be given out in lieu of a payment. Ethiopia however stands out in the East African region as a country where gold is traded in street kiosks. West Africa too is home to a bustling trade in gold jewellery. Despite the recent uctuations in the international price of gold, the New York Times reports that anyone who bought gold in 1999 and held onto it has still performed better than the average stock market investor because it is not subject to the same market driven uctuations. And even after the recent decline, the price of gold is still up 515%. Unlike other nancial assets, however, gold does not produce a stream of income either as rent or dividends.