Concern over gold coins – NewsDay Zimbabwe
BY TAURAI MANGUDHLA
One of Zimbabwe’s leading asset managers, Zimnat Asset Management (Zimnat) has noted that the country’s gold coin system is elitist and cannot present significant arbitrage profit opportunities in the market.
Gold coins to double Mosi-Oa-Tunya will be unveiled at the market on July 25.
In a statement, Zimnat warned that self-custody of the asset potentially poses a huge security risk.
“In our view, based on the potential price (approximately US$1,600 per coin), the primary target market for these coins is banks, corporates, institutional investors and, to a lesser extent, individuals. In our view, this also explains the liquid asset and prescribed asset status that come with the coins.
“From the perspective of the RBZ, the Zimbabwean dollar payment option could be a useful way to mop up excess liquidity. However, gold is limited and pricing coins at the current WBWS (willing buyer, willing seller) rate will immediately create a large arbitrage profit opportunity, implying that from the first day of coin sales, the option purchase of the Zimbabwean dollar will be seriously flawed. “said Zimnat.
The company said that for the Zimdollar call option to work, the gold coins would need to be auctioned daily to allow the highest bidder to buy the commodity.
However, he said, the shortfall of the coin auction is that they will create a new implicit rate, apart from the WBWS rate.
“The instrument will have a serial number for unique identification. In addition, it is accompanied by a certificate of bearer ownership. Pending clarity, this assumes that the coins do not have a registered owner but belong to the party holding the certificate. While this has an advantage over holding cash (i.e. physical custody of assets plus a certificate of ownership), self-custody can pose a high risk to investors,” said added Zimnat.
To alleviate the situation, Zimnat offered secure custody under the supervision of the asset manager since custody arrangements fall outside of normal banking transactions and are part of fiduciary ownership to enhance the security of the coins in case of bank failure.
“Furthermore, it allows investors to apply Zimbabwean dollar balances to an instrument that allows for inflation hedging and rate-linked returns that are generally uncorrelated to equity market performance. However, the risk Downside potential emanates from the poor performance of gold in international markets.In addition, we advise investors to be aware of the tax implications of the instrument, on which we await more information,” added Zimnat.
- Follow us on twitter@NewsDayZimbabwe