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Gold and Blockchain: A Win-Win Combination

By Nikita Knyazev, Head of Commerce, A-Ventures

Published on September 19, 2018

Nikita Knyazev is the head of commerce at management company A-Ventures, which has a focus on precious metals trading. He holds a degree in applied physics and mathematics from the Moscow Institute of Physics and Technology and a degree in Corporate Finance from the Higher School of Economics. In his previous roles, he has worked in market risk, and in an investment company where he was responsible for hedging operations in commodity markets and maintaining an optional part of structural products as a derivatives trader. He was also previously the deputy CEO of Ekaterinburg Non-Ferrous Metals Processing Plant, a refinery on the LBMA Good Delivery list.

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Financial and retail investors are having a tough time in the market today. The US stock market is looking overvalued and the S&P 500 is near all-time highs. Other assets like housing and real estate also seem to be unstable. Gold has been under pressure for years and may not be ideal if you are expecting a bull run, but it will surely hold its value. However, according to the World Gold Council, there was a 7% decline in gold demand in 2017, which was largely investment-related.

I fully agree with Ross Norman from Sharps Pixley that a critical component in investment demand for gold is its publicity. Google Trends charts for the keyword “investment gold” shows a downward movement from its peak in 2011. For most journalists and bloggers, gold simply went out of fashion. Because of this, the crisis is deeper than the independent research houses indicate. It is obvious now that Bitcoin, Ripple, Ether and other cryptocurrencies have taken much media spotlight from our industry. For instance, you can go through the Thomson Reuters 2018 Trading Client Cryptocurrency Survey, which shows that investor interest in cryptocurrencies is stronger than the year before. In particular, one-third of survey respondents said they were “thinking about” trading cryptocurrencies and almost 90 percent of them said they planned to do so in the next 12 months.

Various players in the gold market are exploring how to leverage the popularity of blockchain and cryptocurrencies to raise interest in the gold market. Some of them are offering cold storage services and access to trading Bitcoin, Ethereum in addition to their usual gold business. For example, International Depository Services Group, a privately owned subsidiary of Dillon Gage Metals, is now offering cold storage for Bitcoin and Ripple at its Dallas location. Dubai-based gold trading company Regal RA DMCC received a cryptocurrency trading license, which allows the company to open a cold storage vault. Goldmoney has also recently expanded its cold storage by adding Ethereum and Bitcoin Cash.

Risk Profile for investment gold products

But this vaulting synergy is only the first step of collaboration between gold and the blockchain industry. Gold, a liquid asset with low volatility that is traded within an established regulatory framework, is an important part of the global financial system. The distributed ledger mechanism that underpins cryptocurrencies has the potential to become an established part of the financial system. This new technology presents many opportunities for building new applications, including tracking gold’s provenance across the supply chain, introducing efficiencies into post-trade settlement processes and transforming gold into a digital asset, which may be the most important change. While the other changes may improve business process, turning gold into a digital asset can bring new investors to the gold market.

First, the blockchain can help in managing smaller amounts of gold (such as a 1 ounce or 1 gram). I believe this lower barrier of entry for potential gold investors can bring increased liquidity to the market. The idea of trading gold in such small volumes has been around for many years. Usually, it was a product offered by online gold trading platforms that pooled buyers into a closed-loop system with a single counterparty. The owner does not own an actual physical gold coin or bar, which is instead segregated and allocated among buyers. They are captive to that particular platform, with potentially poor liquidity, monopoly pricing and counterparty risk exposure. This is the problem of unallocated gold.

Now we are seeing allocated digital gold electronically traded with direct ownership, such as Royal Mint Gold and VaultChain Gold. The general idea is that allocated gold in the vault has immutable records of ownership that are maintained on a cryptographically secure blockchain database. In case of RMG, the gold vault will be provided and managed by The Royal Mint, and the CME Group will provide the trading platform. In case of VaultChain Gold, gold will be provided and managed by the Royal Canadian Mint, and trading will be performed on the Tradewind platform. In both cases, investors have the option of redeeming physical gold and have a zero annual cost of carry. Due to the fact that the cost of acquisition is not specified in both cases at the moment, there should be some premium to cover such costs and some margin for the refinery and platform.

Second, gold may become a stable asset for crypto investors. A lot of early holders of Bitcoin, Ethereum and other crypto assets are now sitting on large gains, which have unbalanced their portfolios.

Volatility and Price Chart

Imagine if you started with $10,000 and invested $1,000 into Bitcoin at $500, and the rest in bonds. Realistically this is what occurred: you made 3% on the bonds for approximately two years (1.03 x 1.03 = 1.0609), while bitcoin grew from $500 to $7,000, giving you a 1,400% return. So in monetary terms, your $9,000 worth of bonds is now worth $9,548.1, while your Bitcoin investment is now worth $14,000. Your portfolio is now worth $23,548.1. At this point, experienced investors would be thinking about diversifying. OK, but into what asset? Bonds have negative returns, and stocks are at all-time highs. Real estate is not also a good choice because of their illiquidity, and commodities run the risk of becoming a victim of trade wars between the United States and China.

Crypto investors also prefer holding decentralised assets, so part of their capital gains would likely go towards new ICOs, but these investments are also rather illiquid and volatile.

As such, a “stable coin”, or a cryptocurrency that is pegged to another stable asset, is necessary. This currency would have to be global, not tied to a central bank and have low volatility, which would allow for its practical day-to-day use. Short-term stability is important for transactions and long-term stability is important for holding. An ideal stable coin should be able to withstand a great deal of market volatility, be affordable to maintain, be scalable in terms of liquidity, have easy-to-analyse stability parameters, and be transparent to traders – like the US dollar or gold! A fiat or gold-backed scheme is also highly regulated and constrained by legacy payment rails. There are several projects working on this problem and each one has advantages and disadvantages.

Popular stable coins

Tether is 100% backed by fiat currency assets in a reserve account. The conversion rate is 1 tether (USDT) = US$1. The Tether platform is considered to be fully backed if all tethers in circulation are less than or equal to all fiat that is held in the bank account.

Advantages: Close to a like-for-like swap from fiat to crypto, well integrated and established, near $3 billion in turnover per day.

Disadvantages: Centralised, not trustless, audit refusals.

DGX is a spendable digital warehouse claim for gold, with ownership validation on the Ethereum blockchain. Digix promises transparency: warehousing of gold in vaults that are certified members of LMBA, with “real-time transparency; immutable on-chain auditing records for viewing from inspectorate and PWC”.

Advantages: Planned fees appear to be similar to ETF fees, transaction fees will be 0.1% of the transacted amount, audited reserves.

Disadvantages: Centralised emission, small turnover, rate for redeeming gold not yet specified.

GOLD is a cryptocurrency asset that is 100% ensured by gold, stored in a variety of well-known storage facilities around the world. GoldMint is committed to buying back GOLD from users. It is planned to decentralize emissions, by vending gold storages “Custody Bot”, connected to the blockchain.

Advantages: Audited reserves; emissions currently centralised and aligned to the amount of gold brought by the company.

Disadvantages: Small turnover, independent auditor not yet specified.

Will gold tokens change the gold market?

It will take time for gold tokens like GOLD or DGX to grow in popularity and have trading volumes like Tether. But according to history, gold is more valuable and decentralised than the US dollar.

In all the projects described above, blockchain technology is used to create an immutable, distributed, and transparent record of asset ownership and to increase liquidity in the gold market. However, trusting intermediaries is necessary in all cases – whether they are for storage or transportation – and the market will need time to adjust to this. However, there is a potential for the bullion market to receive new investors and become an entry point and bridge for investors in cryptocurrencies.

Nikita Knyazev is the head of commerce at management company A-Ventures, which has a focus on precious metals trading. He holds a degree in applied physics and mathematics from the Moscow Institute of Physics and Technology and a degree in Corporate Finance from the Higher School of Economics. In his previous roles, he has worked in market risk, and in an investment company where he was responsible for hedging operations in commodity markets and maintaining an optional part of structural products as a derivatives trader. He was also previously the deputy CEO of Ekaterinburg Non-Ferrous Metals Processing Plant, a refinery on the LBMA Good Delivery list.

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Singapore Bullion Market Association Secretariat-Lee-Jia-Yi

Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

SECRETARIAT SBMA-Emily-Oh

Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

SECRETARIAT SBMA Clara-Chang

Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

SBMA Committee-Photo-john-levin

Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

SBMA Secretariat-Fabian-Lew

Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

SBMA-margare-secretariat

Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

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Albert Cheng

Chief Executive Officer

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.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

SBMA-Shaokai-Fan

Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

SBMA-Committee-Alan-Liew

Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

SBMA-Committee-Nikos

Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

SBMA-Committee-khun nuttapong

Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

SBMA Committee-Photo-Raman-Walia

Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

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Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

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Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

SBMA Committee-Photo-Vinh-Nguyen

Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

SBMA Committee-KL-Yap

Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.