Harare - The Reserve Bank of Zimbabwe (RBZ), has introduced the much awaited Mosi-oa-tunya Gold Coins today on the 25th of July 2022 after having announced about the asset in the prior month.
The 1-ounce, 22-carats gold coins entered the market with a prescribed asset status which allows institutional investors to use the coins in meeting regulatory requirements for prescribed asset investments.
Typically, a prescribed asset refers to a security issued by the Government, local Government or quasi-Government and is accorded the ‘prescribed asset’ status by the issuer.
An aggregate of 2,000 gold coins were released into the market today as the first batch of the expected coins.
The opening price per each Mosi-oa-tunya gold coin was US$1,823.80 which was derived from global gold price plus 5% which is meant to cover production costs.
The global gold price per ounce opened the day at US$1,736.95.
Adding 5% of US$1,736.95 which is US$86.85 sums up to US$1,823.80.
Comparatively, the South African gold coin known as the Krugerrand is valued at an equivalence of US$1,789 as of today.
Going forward, the local gold coins will be priced at prevailing global gold price plus the 5%. However, supply and demand factors will also be factored in.
According to RBZ, demand for the first batch of coins today was more than budgeted, and whenever demand for an asset exceeds supply, then the price of the asset tends to increase, and the opposite is also true where if demand is low then the price may be discounted.
Globally, gold coins command slightly higher premiums over the spot price than gold bars, due to the extra minting costs, and the commemorative nature of their value.
Gold bars should be priced very closely to the gold spot price, with just a small additional margin from the mint and merchant.
The Mosi-oa-tunya gold coins can be purchased and sold using the local currency (ZWL) or the United States Dollar (US$).
Zimbabwe’s sole legal exchange rate, the interbank exchange rate, will be used as a basis of translation.
The interbank exchange rate opened the week at ZWL423.4934 per each US$. Therefore, at a price of US$1,823.80 per each gold coin, the local currency equivalence per coin is ZWL772,366.20.
However, since the country’s economy is highly informal, a parallel currency exchange market has remained viable on the informal sector since de-dollarization. The exchange rate on the parallel market was hovering around 800 today.
Therefore, an investor holding US$1,823.80 and willing to buy the Mosi-oa-tunya gold coin would rather fetch ZWL1,550,228 on the parallel exchange market and this is enough for the investor to buy 2 gold coins using the local currency. This is a clear indication of possible arbitrage in the market of gold coins.
However, the Central Bank moved a step ahead to introduce a vesting period of 180 days before one can liquidate their gold coins. The vesting period serves in demotivating speculative buyers to obtain gold coins as they are not as highly liquid as speculating trading would allow.
On the other hand, the short-coming in this solution would be the existence of a secondary market.
Under the terms of the gold coins issuance, the coins can be used as a medium of exchange.
This means according to the discretion of a seller and where double coincidence of wants exists, one can use the gold coins to make a purchase for goods.
Where this is concerned, arbitrage can then exist where one can buy a gold coin using the local currency as highlighted above before purchasing goods priced at the parallel exchange rate, thereby acquiring the goods at half the value.
The RBZ also intends to control inflation by mopping out excess liquidity in the economy using the gold coins.
However, this remains to be seen in the short-term as uncertainty has remained a major drawback to confidence in regulated asset classes in Zimbabwe.
Institutions and pension funds who were flooding the parallel market with local currency in pursuit of value preservation will now dwell on the gold coin market in search of safe havens and this will result in short-term stability in the currency market.
However, the pricing of the gold coins seeks to only target institutions and the elites as ordinary citizens continue to live beyond the poverty-datum-line and therefore can not afford even a single gold coin.
The majority of citizens will, therefore, continue to depend on the hard currency US$ which is obtained on the parallel currency market as the once viable Zimbabwe Stock Exchange has lost grip as a safe haven.
Equity Axis News