One of the greatest barriers to people investing in the world’s longest-running medium exchange is, frankly, a lack of knowledge. The World Gold Council’s survey found that
66% of potential gold buyers don’t know enough about the precious metal to invest in it.
Isn’t that curious? Gold has been the go-to store of wealth for many through-out history - trusted even more than fiat currencies - and yet so many are put off due to a lack of knowledge.
Actually, I’m not surprised. When speaking to other fintechs about integrating with Goldex to gain access to our marketplace for allocated physical gold, there are three basic questions I face repeatedly:
- How do you actually buy physical gold?
- Isn’t gold niche?
- Can’t I just offer an ETF?
So let me share my answers to the most common questions - or misconceptions - surrounding gold.
1. When you buy gold it’s always physical gold
You want to invest in gold for the right reasons, quite often to hedge against inflation. However, 95% of the world’s gold businesses – especially banks – will automatically sell you unallocated gold. Unallocated gold is not gold that you own. It’s an “IOU
some gold”. Surprising?
In reality, when you buy unallocated gold, you become a creditor of the bank and sit on their balance sheet, i.e. the bank owes you gold that you do not own. You cannot store the gold you’ve bought in a vault (or under the bed). Why? Because you haven’t
actually bought physical gold (more on that in point 3 below).
There really is only one solution to the conundrum. If you want to buy gold that legally belongs to you, buy allocated physical gold. If the bank, dealer or even Goldex were to fail, the gold would still legally belong to you.
With Basel III coming into effect in the UK in 2023, the prevalence of unallocated gold will vastly diminish in favour of allocated gold.
2. Gold is a niche industry
Let’s look at the allocated physical gold market. Every single day, £4.5bn of allocated physical gold is traded in London alone. It’s worth stating again – four point five billion pounds’ worth of physical metal, just in London. Every day.
Here’s another huge number: according to
The World Gold Council, at the end of 2020 there was a total of 201,296 tonnes of mined gold in existence, i.e. gold that is above ground. At today’s value (US$57.85
per gram – July 28th ’21), that gold is worth just over US$10.56 trillion.
Bear in mind that the USA’s GDP for 2020 came to
US$20.93 trillion, just over double. Even more striking is when you compare the US$10.56 trillion valuation of mined gold to the value of all Bitcoin in circulation:
US$653 billion. Mined gold is worth more than 16 times all of the Bitcoin out there.
Consider also that most sources estimate the remaining gold in the ground, yet to be mined, at just over 50,000 tonnes. Gold is finite
and can’t be reproduced (alas) and, hence, justifies its position as the ultimate store of wealth.
3. Gold ETFs are as good as physical gold
Gaining access to allocated physical gold has historically been the preserve of the privileged few. As a result, when it’s hard to access an asset, derivative forms of it are created that provide the buyer with exposure. It’s the same story with gold. Due
to the difficulty financial companies face in offering access to allocated physical gold to their retail customers, they’ve naturally rolled out derivative products instead.
However, as discussed with unallocated physical gold above, buying an ETF, gold-backed crypto or any other derivative only gets you exposure to the metal. The purchase does not provide ownership of physical gold. Furthermore, remember this – if the issuer
of the ETF fails, the investor’s money is lost. That’s not the case when you legally own the metal. Think of an ETF as aspartame and allocated gold as sugar. One imitates the other but is clearly not the same thing.
Do you have any other questions about the gold? Leave a comment or get in touch.