In Kenya, gold prices rose by over 10% in October. As the cost of living spirals out of control, the demand for spot supplies remained strong. However, the economic crisis and Covid-19 is putting strain on the country’s economy. This article focuses on the reasons for the price increase in Kenya.
Demand for spot supplies remained robust
Demand for spot supplies remained strong throughout the week, with spot rates in Kenya at an all-time high. Despite the rise in gold prices, demand was tempered in other parts of the world. Asia remained the main driver of demand, with demand in China, India and South Africa also strong.
Kenya’s economy is recovering from the effects of COVID-19, but several other factors continue to weigh on the country’s growth. Besides the drought and famine, it is under significant pressure from a wide range of macroeconomic factors, including rising commodity prices and disruptions in key inputs. As a result, it is important for U.S. companies to be wary of the country’s economic situation.
Political instability is another factor that affects gold prices. The world’s economy is still recovering from the pandemic, but there are lingering political tensions. China’s ongoing conflict with Covid-19 is a further headwind. Further escalation of conflict could burnish gold prices. Additionally, sanctions against Russia could signal a fundamental shift in gold’s role in the global economy.
Demand for jewellery remained strong
Demand for jewellery in Kenya rose in the second quarter, driven by robust wedding and festival sales. Though the first quarter was weak, Q2’s demand was 49% higher year-on-year and 6% higher than the five-year quarterly average. In addition, the price of gold was corrected at a timely period, which also contributed to the positive picture.
The macroeconomic backdrop also contributed to the rise in demand, albeit to a lesser extent than in the first quarter. The growth in demand for gold jewellery was led by urban consumers, whose economic activity has regained to pre-pandemic levels. In contrast, rural consumers have been hit by rising inflation and higher interest rates on agricultural loans. Moreover, the impact of COVID on demand has yet to be fully remedied. Overall, 22k plain gold jewellery dominated the market while 14k and 18k jewellery gained share.
Cost of living has spiraled out of control
The cost of living has skyrocketed in Kenya as the inflation rate continues to rise. Despite monetary and fiscal interventions, the rising cost of living is making it harder for people to make ends meet. The government may be forced to cut taxes and import duties to stimulate growth, but it’s doubtful that this will be enough to curtail the spiraling inflation. The high cost of living is putting the country’s economy at risk.
Covid-19 is putting pressure on Kenya’s economy
The COVID-19 pandemic, which swept across Africa in March, has had far-reaching consequences on Kenya’s economy. The impact on different sectors has varied, both in the short-term and the long-term. Kenya’s early assessment of COVID-19 impacts on selected industries, such as horticulture, ICT, and tourism, reveals that the impact has been far less severe than expected.
Many Kenyans are now living in informal settlements. As a result, the lack of jobs and a lack of a stable economic situation are putting a heavy strain on the economy. The majority of Kenyans live hand-to-mouth, and their livelihoods are in jeopardy. The ill-effects of the disease are also affecting the public health system.
Investing in gold through ETFs
A gold-backed exchange traded fund traded in Kenya has hit an all-time high. The fund, named Absa New Gold, is based on real-time prices of gold in the world’s markets. The fund recently achieved its highest turnover in its history. It has a market value of 18.2 U.S. dollars and is traded on the Nairobi Securities Exchange.
Gold ETFs are an efficient way to invest in gold. They are far easier to store than physical gold. Unlike physical gold, which can be stored and traded in one single bar, gold ETFs allow you to buy and sell units on a variety of exchange-traded platforms. In addition, they don’t require the hassle of insurance and safe storage.