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Friday, 25th September, 2020
 Nigeria   ::   News
COVID-19: Nigeria may find new economic strength as gold heads for $2000
Aug 03, 2020
Source: Nation

Nigeria, the giant of Africa economic development may receive significant boost from gold mining as gold prices hit all-time highs, with about 30 per cent price gain so far this year.

As part of the economic diversification and reforms in the solid minerals sector, Nigeria had for the first time recently refined its own reserve gold bar and paid N268 million for a 12.5 kg bar to start a central bank stock.

Senior Research Analyst, FXTM, Mr. Lukman Otunuga, said the stratospheric gold prices and spiritless oil prices would seem to indicate that Nigeria’s investment in gold mining is a timely and positive one.

According to him, amid the COVID-19 pandemic, gold remains a market-moving and safe-haven asset after spot prices hit all-time highs above $1,981 last month. The precious metal appreciated almost 30 per cent for the year-to-date as it heads to some $2,000.

“There are several factors over-and-above the COVID-19 disease that are supporting gold prices. Safe-haven buying triggered by fears over tense United States-China relations has boosted the metal’s spot and futures prices. In recent events, the US closed one of its six consulates in China and a Chinese consulate in Houston was closed, raising questions about whether the second phase of trade talks can make any constructive progress,” Otunuga said.

He added that the dollar’s weakness due to low yields on treasury bonds and exposure to negative COVID-19 sentiment has prompted investors to favour gold over the dollar.

According to him, given the general global and national economic outlook, Nigeria’s new gold reserve comes at a promising juncture for the country’s emerging mining industry.

“It is also an encouraging development in the diversification of the national economy which the government hopes could lead to a stronger job market. If well harnessed, gold mining and trading has the ability to potentially generate more revenue than crude oil for Nigeria,” Otunug said.

He outlined that the underlying position in the country’s gold market shows strong potential.

Nigeria’s gold reserve is estimated at 200 million metric tonnes, according to the Nigeria Mining Growth Roadmap.

Meanwhile, Trading Economics places Nigeria as the six largest country with gold deposits in Africa, with an average of 21.46 tonnes from 2000 to 2019, reaching an all-time high of 21.51 tonnes in July, last year. The nation’s estimated gold reserves are over 200 million ounces, most of which have not been exploited.

Otunuga noted that the newly-regulated gold mining sector is expected to create 250,000 new jobs and provide the Federal Government with an additional estimated yearly revenue of $150 million in taxes, $25 million in royalties and $500 million in foreign exchange reserves.

“These positive developments in the gold mining and central bank reserve initiatives may help to improve investor sentiment against the background of COVID-19, low oil prices and the expectation that Nigeria’s economy could contract by anything from three to six percent this year. We must also factor in another hit to export earnings caused by the deeper cuts imposed by Organisation of Petroleum Exporting Countries (OPEC) on Nigeria and Iraq due to overproduction,” Otunuga said.

He pointed out that a well-managed diversification into precious metals mining and building a national gold stock can support the central bank’s foreign exchange reserves long term, as well as boost other wider types of gold trading like derivative investments and mining stocks.

He however cautioned that care must be taken to protect the new sector’s reputation and government regulations would need to be seen as enforceable for long-term credibility.

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