News / National
Zimbabwe's bullion-backed ZiG is missing out on gold's record run
14 hrs ago | Views
Zimbabwe's bullion-backed currency is missing out on an impressive gold rally, because of a liquidity squeeze that's choking the economy and difficulties in exchanging the unit for dollars.
Since the ZiG, short for Zimbabwe Gold, started trading on April 8 the gold price has rallied 24% to a record high, while the local currency has weakened 95% to the dollar.
"No rationale market player is really looking at the gold price, but money supply," said Shelton Sibanda, the chief investment officer at Imara Asset Management, the nation's oldest brokerage, which manages $100 million. "We have seen money supply tightened in the past few months and that really is what has sway on the local currency."
The central bank has curtailed money supply and kept the key interest rate at 35% since devaluing the ZiG by 43% in September to help it stabilize. It was launched last year to supersede the dollar in domestic transactions after previous attempts to stand up a local currency failed.
Tight monetary policy has also negatively impacted stocks. Governor John Mushayavanhu said last week the central bank's tight policy stance "comes with inevitable liquidity squeeze, necessary to instill market discipline and curtail disruptive speculative behavior in the economy."
Difficulties in being able to exchange ZiGs for dollars have also excluded it from gold's gains by casting doubt over the local currency's viability, Sibanda said.
It also points to the southern African nation "not having enough hard currency foreign reserves to support a stable, freely convertible currency," said Hasnain Malik, an emerging markets strategist at Tellimer in Dubai.
The only real benefit it's getting from bullion's record run is in the value of the country's gold reserves, said Sibanda. The Reserve Bank of Zimbabwe's stockpiles have risen to 2.67 tons from 1.5 tons at the ZiG's debut.
Since the ZiG, short for Zimbabwe Gold, started trading on April 8 the gold price has rallied 24% to a record high, while the local currency has weakened 95% to the dollar.
"No rationale market player is really looking at the gold price, but money supply," said Shelton Sibanda, the chief investment officer at Imara Asset Management, the nation's oldest brokerage, which manages $100 million. "We have seen money supply tightened in the past few months and that really is what has sway on the local currency."
The central bank has curtailed money supply and kept the key interest rate at 35% since devaluing the ZiG by 43% in September to help it stabilize. It was launched last year to supersede the dollar in domestic transactions after previous attempts to stand up a local currency failed.
Tight monetary policy has also negatively impacted stocks. Governor John Mushayavanhu said last week the central bank's tight policy stance "comes with inevitable liquidity squeeze, necessary to instill market discipline and curtail disruptive speculative behavior in the economy."
Difficulties in being able to exchange ZiGs for dollars have also excluded it from gold's gains by casting doubt over the local currency's viability, Sibanda said.
It also points to the southern African nation "not having enough hard currency foreign reserves to support a stable, freely convertible currency," said Hasnain Malik, an emerging markets strategist at Tellimer in Dubai.
The only real benefit it's getting from bullion's record run is in the value of the country's gold reserves, said Sibanda. The Reserve Bank of Zimbabwe's stockpiles have risen to 2.67 tons from 1.5 tons at the ZiG's debut.
Source - Bloomberg
