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The Future of the Gold Investor

By Vikas Shenoy, Head of APAC Origination & Partnerships, InfiniGold

Published on January 12, 2021

Over the past two decades, economic activity has made a gradual shift toward the digital realm, with today’s largest companies intrinsically linked to the world of the internet, digital commerce and digital infrastructure. In fact, internet-centric technology has probably been the single most important means of allowing companies and individuals worldwide to carry on with their businesses and lives during the Covid-19 lockdowns.

The pandemic has accelerated digital adoption in 2020 – and this could well be the inflection point for the investing community. Financial investing is becoming more mainstream, with the ubiquitous adoption of smartphones enabling access to mutual funds, ETFs, stocks, commodities, and more. Robinhood, the notoriously popular trading app, has been attributed, rightly or wrongly, to some seemingly inexplicable moves in the stock market. Now valued at nearly US$14 billion, it boasts more than 13 million users. Revolut, another fintech giant, has reinvented itself from a travel solutions provider to a fully-fledged digital bank, now offering commodities and crypto trading.

In parallel, there is a not-so-silent revolution brewing in the cryptocurrency space. The past year has seen cryptocurrencies shed some of their taboo and integrate with traditional finance. Square, the American payments firm led by Twitter CEO Jack Dorsey, invested US$50 million in Bitcoin, while Paypal will soon enable customers to buy, sell and spend cryptocurrencies within its ecosystem of 26 million merchants. Marking a first among traditional banks, DBS plans to launch a digital currency exchange, bringing cryptocurrencies under a regulated regime in Singapore.

GOLD AND THE GOLD INVESTOR

Gold has a unique place in an investor’s portfolio, having proven its worth over centuries as a store of value, hedge against inflation, and an asset beyond the reach of over-zealous central banks and politicians. Yet for the next generation of investors, gold will have to compete with ETFs, stocks, mutual funds and cryptocurrencies for a place in their portfolios. The average age of a Robinhood user is 31 years, while the average age of a Revolut customer in Singapore is 35. Would they want to store and insure a kilobar of gold in a vault for a hefty fee? Or would they demand easy, instant access to gold in a quantum of their choice, where they can sell or exchange instantly and securely?

In its recent report on Chinese retail gold business, the World Gold Council highlighted that gold is a vital component of the Chinese investor portfolio, with six of the top 11 investment products linked to gold (bars, coins, jewellery ETFs, etc.). Also, the two major drivers of gold investment are simplicity (“easy to buy and sell” and “no complicated arrangement or management”) and reassurance (counterfeit gold and storage issues).

When reporting on US retail gold investing trends, the World Gold Council stated that over one-third of US investments is made exclusively online, led by cryptocurrencies. It also noted that “there are further untapped opportunities to deliver gold through digital platforms”. Again, it was stressed that “the foremost driver is simplicity. They want products that they understand, that are accessible, and that are easy to buy and sell”.

To address these concerns and make gold a freely investable asset, there are two key methods available: digitisation and fractionalisation.

  • Digitisation broadly refers to a digital representation of the underlying physical gold asset in an immutable and secure manner, via an ETF, digital certificates, or tokenised assets.
  • Fractionalisation is the ability to buy or sell a fraction of gold, much like with fiat currencies.

There are a few companies taking the lead in providing the necessary technological rails for the precious metals industry to cater to this need.

InfiniGold, for example, has enabled The Perth Mint to “virtually” open up its vault to the average investor looking to purchase gold without the hassle or cost of storage, security or ongoing fees. Gold, backed by the Government of Western Australia, can be bought for as low as US$0.02 at any time from anywhere.

Another example is Icecap, which launched its diamond-backed token earlier this year, enhancing the gem’s accessibility and liquidity, resulting in free price discovery and a much fairer market. Previously, purchasing diamonds on the retail market yielded an instant loss, as several brokers and intermediaries would already have taken a share of the profits by that point.

Uphold, a financial services company, combines a platform app with payment rails, enabling users to spend 30+ currencies, including tokenised gold, on their debit cards. So, in theory, you could buy your Starbucks coffee with gold! In countries with unstable political regimes or hyperinflation, there is clear value in developing gold as a reserve currency alongside the US dollar.

HOW TOKENISATION CAN TRANSFORM THE GOLD INDUSTRY

Tokenisation simply refers to converting an asset into a cryptographic token on a blockchain database. At the heart of it, it is just another secure way to represent the value of the underlying physical asset.

As the world continues to weather the coronavirus crisis, global supply chains remain disoriented and disrupted, with globalisation curtailed. It’s never been more important for companies in emerging markets to access liquidity and keep supply chains moving efficiently. Tokenisation provides a new way for companies to effectively tap into digitisation – opening up the sector to an entirely new demographic of global investors, and creating a new business model for sustainable international trade.

Several leading commodities companies have piloted tokenised products over the past 18 months. For example, Nornickel, the Russian smelting giant, is in the test phase of tokenising palladium, cobalt and copper.

There are a handful of popular gold-backed tokens in the cryptocurrency space. These gold tokens cater to the new-age digital asset investor, who want to store and grow wealth within the cryptographic ecosystem. Barring the presence of a handful of gold companies like The Perth Mint and MKS, the gold tokenisation ecosystem needs active involvement from traditional gold refiners and jewellers to provide legitimacy, regulation, and the necessary direction to the industry.

It is becoming increasingly evident that digitisation of commodities and the advent of related cryptographic currencies are here to stay. The gold industry has historically been slow to adapt to and adopt new technologies; not being at the centre of this rapidly evolving digitisation conversation may prove detrimental to the long term-interests of the industry and the investor community.

VIKAS SHENOY is Head of APAC Origination & Partnerships at InfiniGold, a commodities digitisation company that provides a Platform-as-a-Service (PaaS) offering to the precious metals industry. Prior to joining InfiniGold, Vikas spent nearly 10 years in commodities sales and trading with Société Générale, ANZ Bank and Deutsche Bank, across Mumbai, London and Singapore.

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Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

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