Kyrgyz Regulator Approves 'Gold Certificates'

KLS Securities LLC advises its clients that on 31st October 2014 the Executive Council of the securities market regulator, the Kyrgyz Government Financial Markets Regulation and Supervision Agency, approved the much advertised launch of ‘gold certificates’ in the Kyrgyz investment market.

The concept of gold certificates is that they will be fully backed by physical gold and their price should therefore track the world price of gold.

The Government resolution detailing the regulations for gold certificates is currently only being drafted and debated by concerned agencies, although the general concept of the gold certificate has already been communicated to the market by the regulator.

Vladimir Kiriusha, CEO of KLS Securities, comments.

“A certificate tied to the physical gold is a rare investment instrument. Investments into gold would normally follow one of the more established routes:
– gold-backed ETFs (exchange traded funds), of which SPDR is probably the most known (its assets are around 700 tons of gold). ETFs are perfect for private retail investors because of the instrument’s instant liquidity and transparency;
– gold investments of larger size can be done through special precious metal accounts held with major banks. Similarly to ordinary accounts, such instruments legally are a right of claim to the bank for the price of a certain volume of gold.
– other investors may wish to purchase physical gold and keep it in a bank or a specialized storage facility. This way of investing takes out the risk of the bank’s bankruptcy but is otherwise inflexible.

While investors may take interest in buying gold certificates as a means of investing into gold, to have a successful launch the gold certificate concept must be attractive to issuers. And this is where we currently see several issues requiring further development.

We struggle to find an economic reason for someone to purchase, say, 1 ton of gold, deposit it with a bank, issue investment paper backed by it and undertake to either deliver gold or pay the current market price of gold to investors on maturity. Why not use the available money for desired investment objectives in the first place. The issuers must have more flexibility when setting the parameters of the issue, Eg. fix the redemption price or should be allowed issuing gold linked paper without a 100% cover.“

KLS Securities will closely follow the legal developments with this new financial instrument and will respectively advise its clients.

We also announce that our legal consultants are closely working with the regulator to refine the gold certificate concept.