The Dubai Gold Securities (DGS) have found most of their buyers from institutional investors in the region, senior officials involved in the region’s first Shariah compliant exchange traded fund (ETF) said.
Investment arms of HSBC and Mashreq besides investment banks like Shuaa Capital and other asset managers account for a good chunk of DGS traded so far.
“On the back of increased risk in markets, institutional investors are seeking to increase exposure to gold as an asset class within their portfolio. Institutional demand for the product has been particularly high,” said Sameer Meralli, Director (Marketing) of Dubai Commodities and Asset Management (DCAM).
DCAM, an arm of the Dubai Multi Commodities Centre (DMCC) is marketing the DGS.
“We have seen strong interest from asset managers who are looking for cash equitisation, sector exposure, and hedging against the US dollar or inflation,” he said.
“We have also been approached by several financial institutions which are interested in executing a tactical trade on the gold price or looking for a strategic investment into the gold asset. These investors view the product, at a cost of only 40 basis points, as a cost effective and liquid investment to implement their trading strategy,” Meralli said. On May 11, the total number of DGS traded so far stood at 15,200. In terms of monetary value, the volumes stood at about $1.4 million. (Dh5.1m). Since investors are allowed to trade in DGS through Nasdaq Dubai registered brokers, exact information regarding how much proportion of DGS trade these institutional investors account for is not yet available.
Senior DMCC official told Emirates Business that Nasdaq Dubai will be requested to provide the details of the investors at the end of the second quarter – that’s the end of June.
“The performance tracks the spot price of the gold. Since its launch, DGS has had close to 0.999 correlation to the price of gold.
“Since it is an open-ended security and the liquidity of the product is backed by one of the deepest and most liquid gold markets in London, investors view it as an easy and cost effective means to access gold in their portfolio,” Meralli said.
Retail investors who were previously excluded from partaking in the physical gold market are also purchasing DGS, Meralli said. “It effectively outsources the transport, sourcing, insurance, and ancillary costs of taking physical delivery of the bullion.”
DGS can be bought and sold on Nasdaq Dubai in the same way as shares are traded, through one of the exchange’s 31 regional and international trading members, or through a broker that has a relationship with a Nasdaq Dubai member.
DGS is an initiative of the World Gold Council and the DMCC.
Similar gold securities have been listed through WGC initiatives on 12 other international exchanges, with gold in trust exceeding 1,400 tonnes.
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