×
  • Business - Economy
  • Updated: June 21, 2021

How Nigerians Can Invest In Gold To Escape Hyperinflation

How Nigerians Can Invest In Gold To Escape Hyperinflation

It's no news that Africa's largest economy is currently suffering from hyperinflation and the nation's harsh economic pressure has pulled more millions of people below the poverty line.

A recent report by the World Bank showed that at least seven million Nigerians have been swept below the poverty line due to rising inflation, and unfortunately, present realities do not point to any prospects of the country beating its current economic woes in the near future.

This coupled with a constantly weakening naira is pushing the need for Nigerians to find efficient ways to preserve the value of their resources by hedging.

How Gold Works As A Hedging Asset

A hedging asset is basically anything that can be bought to protect your money from risky situations such as hyperinflation. 

The higher the risk of loss, the greater the importance of protection against it. Currently, naira earners are at risk of losing 17.93% value of money because of inflation.

Although Gold is regarded as a hedge investment against inflation, it does not completely eliminate your potential loss. Gold prices go up when the interest rate goes down; which is directly proportional to the strength of the economy. So, in a broad sense, Gold is a hedge against an unstable economy. People see gold as a way to pass on and preserve their wealth from one generation to the next.

When an official currency loses its purchasing power to inflation, which is the current situation we are witnessing in Nigeria, Gold tends to be priced in the base currency (mostly US dollar) and, thus, tends to rise in local currency terms. Gold is therefore seen as a better store of value than a local currency.

There are several ways to invest in gold which would be seen in this article:

1. Buying physical gold (bars and coins)

Luckily, compared to other commodities, Gold is more accessible to the average investor, because an individual can easily purchase Gold from a precious metals dealer or, in some cases, from a bank or brokerage. Small bars and coins accounted for approximately two-thirds of annual Gold investment demand and around one-quarter of Gold’s global demand over the past decade.

Major cities like Lagos, Abuja, and Kano have a large number of gold traders but mostly in jewellery form. However, take caution in where and who you purchase from because there are many fake dealers and products around.

2. Buying gold-backed Exchange Traded Funds (ETFs)

Another way to invest in gold is by buying shares of ETFs that have exposure to gold. Physically-backed gold ETFs account for approximately one-third of Gold’s investment demand. These funds were first launched in 2003 and as of March 2016, they collectively hold 2,300 tonnes of physical gold on behalf of investors around the world. A major Gold ETF in Nigeria is the NEWGOLD ETF that is traded on the Nigerian stock exchange. It was created by an asset management company called NewGold Managers Limited and the fund is sponsored by Vetiva Capital Management Limited. It is currently trading ₦8,900, down 6.28% at the close of the market.

3. Buying gold mining stocks

Another way to invest in gold is by buying gold mining stocks. Gold mining company stocks may correlate with the price of gold. However, the growth and return in the stock depend on the expected future earnings of the company, not just on the value of Gold. A notable Gold mining company trading on the Nigerian stock exchange will be Japaul Gold. The company changed its name from Japaul Oil to Japaul Gold which represented their transition into the mining industry, specifically Gold mining. The stock is currently trading at ₦0.51, currently down 1.96% as of the close of the market on Friday.

 

Related Topics

Join our Telegram platform to get news update Join Now

0 Comment(s)

See this post in...

Notice

We have selected third parties to use cookies for technical purposes as specified in the Cookie Policy. Use the “Accept All” button to consent or “Customize” button to set your cookie tracking settings