GOLD-BACKED SECURITIES AS NEXT INVESTMENT FRONTIER

The securities allow investors to benefit from gold’s stable, long-term value and protection against inflation, argues SOLA ONI

It may sound quite literally that Nigeria is standing on the brink of a golden opportunity. But this is the reality with the recent revision of the National Pension Commission (PenCom) Investment Regulation now allowing pension funds to invest in gold-backed securities. The country is positioning itself for a new era of diversified and resilient investing.

Gold-backed securities are financial instruments whose value is directly linked to physical gold which, which serves as the underlying asset. In essence, investing in these securities means purchasing a share or unit that represents a specific quantity of real gold stored securely . Investors gain exposure to gold prices without having to buy or store the metals themselves. This type of investment is a form of derivative trading, recognised as an important asset class in modern portfolios.

Instead of holding and keeping gold yourself, you can invest through products like Gold Exchange-Traded Funds (ETFs) or other gold-linked instruments traded on a regulated exchange. These securities allow investors, including pension funds and individuals to benefit from gold’s stable, long-term value and protection against inflation, without the risks or costs of physically owning and storing the metal. It should be mentioned that many exchange-traded funds (ETFs) are backed by physical gold and are listed on major stock exchanges like the New York Stock Exchange (NYSE) , New York Mercantile Exchange (NYMEX) and Shanghai Gold Exchange (SGE) in China.

In the Nigerian financial market, gold-backed securities is not just another policy tweak. It represents a strategic shift that connects long-term capital with real-sector assets, unlocking value in one of the world’s most reliable stores of wealth, gold. If properly harnessed, it could reshape Nigeria’s financial landscape, deepen the commodities space and enhance investor confidence across the board.

At the heart of this transformation are three institutions whose collaboration will define its success: National Pension Commission (PenCom), the Lagos Commodities and Futures Exchange (LCFE), which represents the Commodities ecosystem and the Securities and Exchange Commission (SEC). Alongside them, government must play the enabling role, ensuring stability, policy coherence, and investor protection.

As regulator of Nigeria’s pension industry, PenCom manages one of the country’s largest pools of patient capital, with assets now surpassing ₦18 trillion. Its decision to approve gold-backed instruments for pension investment is a visionary step that broadens the horizon of opportunities available to Pension Fund Administrators (PFAs). Beyond regulation, however, PenCom must ensure that such investments are guided by transparency, prudence, and robust risk management.

To achieve this, the Commission should strengthen its supervisory frameworks and provide continuous training to PFAs, enabling them to assess and manage exposure to commodity-linked assets. Pension funds should also embrace gold-backed Exchange-Traded Funds (ETFs) as part of their diversification strategy, instruments that combine the safety of physical gold with the liquidity of the capital market.

The Lagos Commodities and Futures Exchange (LCFE) symbolises the operational engine of this evolution. The overriding role of every commodities exchange is to facilitate transparent, efficient, and credible trading in gold and other assets. By this development, commodities exchange in Nigeria must continue building investor trust through product innovation, strong custodial frameworks, and seamless market operations.

LCFE’s efforts to introduce gold-backed ETFs, standardized gold contracts, and fractional gold ownership options will provide accessible entry points for both institutional and retail investors. Transparent pricing, verified reserves, and secure warehousing are essential to ensuring that these instruments reflect real value. By deepening liquidity and promoting awareness, commodities exchanges can bridge the gap between Nigeria’s commodities sector and the financial markets that sustain it.

Equally critical is the role of the Securities and Exchange Commission (SEC), the apex regulator of Nigeria’s capital market. SEC’s establishment of a dedicated derivatives and commodities oversight committee is a major step forward.

This body’s work, from refining disclosure standards to coordinating with PenCom and the Central Bank of Nigeria (CBN), will ensure that gold-backed investments are well-regulated, credible, and globally competitive.

Strong oversight by SEC and the managers of Self-Regulatory Organisations (SROs) will attract both domestic and foreign investors who are seeking secure exposure to emerging markets like Nigeria. The credibility of regulation is the bedrock upon which investor confidence rests.

Still, none of this progress will be sustainable without government support. The government must focus on creating a stable and predictable macroeconomic environment. Policy consistency, contract enforcement, and investor protection are essential. Equally important is support for the gold value chain itself, from mining and refining to certification and logistics, ensuring that the commodities traded on LCFE are backed by real domestic production.

Fiscal incentives, such as tax reliefs for long-term commodity investors and reduced transaction costs on regulated exchanges, would further enhance the market’s appeal. By providing the right infrastructure and governance environment, government can turn policy into prosperity.

For investors, this moment represents a significant new frontier. Pension Fund Administrators can now hedge inflation and currency risks by investing in gold-backed ETFs. Institutional investors such as insurance companies and asset managers can diversify portfolios with commodities that retain value in uncertain times. Retail investors, through fractional gold ownership or ETFs, can participate in an asset class once reserved for the elite.

Even foreign investors can leverage commodities exchanges to access Nigeria’s growing commodities ecosystem, knowing their investments are protected by SEC, SROs and PenCom oversight. The new initiative signals a turning point for Nigeria’s financial future. Together, they are laying the foundation for a more diversified, stable, and inclusive investment environment.

Gold has always been a universal symbol of value and security. Now, it has the potential to become a pillar of Nigeria’s next phase of economic growth. If the right policies, partnerships, and investor protections remain in place, gold-backed securities could indeed become Nigeria’s next great investment frontier, one that turns regulation into opportunity and opportunity into national prosperity.

Oni, an Integrated Communications Strategist, Chartered Stockbroker, Commodities Broker and Capital Market Registrar is the Chief Executive Officer, Sofunix Investment and Communications