The long standing allure of gold is interwoven into the history of civilisation. From the death masks and funerary rooms of the Pharaohs to the lost Galleons of the Spanish Plate fleets, legendary gold mines of Witwatersand or fabled Amazonian cities of gold, we are all familiar with stories and legends, which will have at some point captured our imaginations. Real or imagined, their hold over us is maintained by the concept of gold as physically incorruptible but yet also as an uncontested store of value over time.
From ancient coinage to the bedrock of the global financial system, gold has roots in the monetary system, however, in recent decades, gold has fallen foul of the new world monetary order. However, despite attempts to limit its influence in the age of fiat currency, its appeal is embedded in human nature, cannot be extinguished and remains rooted in society and indeed, somewhat ironically, the finance industry. Exchange traded funds have seen recent net inflows into gold-related holdings and certain governments continue to build their bullion reserves, maintaining the rhetoric that gold is still a valid store of value. Indeed, gold as an investment asset class has performed remarkably well in the last thirty years, outpacing returns from most indices.
Recent surveys suggest gold may be falling out of fashion with millennials and Gen Zs but some innovative financial institutions are implementing a contrarian approach to the subject. One of such institutions is Migom Bank, a neobank with the global outreach, where the management believes that the perceived indifference of the new generation to gold is not a reflection of waning value of the asset itself, but rather rooted in the need to bridge the concept of complexity of acquisition and custody, of what is historically a tangible and tactile commodity, into the fast-pace age of digitalisation. As a digital modern bank, Migom Bank is well positioned to redefine the consumer relationship with gold.
“Gold has cross-generational appeal through familiarity” says Thomas Schaetti, President of the Bank “though in modern times it’s considered to be somewhat outdated as a means of exchange, gold is still an intuitive store of value and plays an integral role in the world’s metal markets, with a traded value of approximately $140 billion daily. ” He explores the wider landscape for gold “globally and indeed culturally, demand for the precious metal can be seasonal and to some degree cyclical. In the modern day we see COVID as a long-term positive influence on the price action of gold, as the commonplace monetary policy in the form of printing more money to avert the risk of a global depression favours such a positive outlook. With that in mind we are going to shortly deliver an innovative financial product, which we believe everyone is waiting for.”
Thomas expands further by explaining the potential appeal of markets closer to home “These are not new factors, however at Migom Bank we see an opportunity to bring ethically sourced gold from mine to mint, to market, in a regulated and transparent process that not only addresses behavioural shifts in consumer awareness, but will also serve the source sovereign country and resource owners well, and allow our clients the opportunity to hold a resource that has stood the test of time in a digital wallet, fully interchangeable with fiat and digital assets.”
Quite simply, Migom Bank is bringing to the market a 1-ounce gold coin, which is going to be available delivered to your mailbox as a tangible asset, or into your crypto wallet (as a whole or in fractions) as a fully-secured stable digital gold coin redeemable 1×1 into a real golden one. You will be able to pay for it by any major fiat or cryptocurrency, which indeed will fully “physicalize” your crypto.”
On the global stage, the outlook for gold is bright. Years of under exploration and loose monetary policy have combined to create today’s favourable environment. Goldman Sachs and Citibank both have a positive forecast of over $2300 an ounce. Certainly a stable and higher gold price is arguably inevitable on a forward looking basis, regardless of monetary policy of the major governments as gold is truly a finite commodity. Gold is also supported traditionally by the financial system worldwide and retail investors as it presents a hedge against risk and also an opportunity for gain.
In the view of increasing market turbulence, clear signs of emerging hyperinflation and looming sovereign debt collapse in major world economies, all of which would stifle economic growth, consumers look to different asset classes. Some are old and some are new.
Cryptocurrencies are a good example of a new alternative, based upon blockchain technology. These currently appeal to some investors, leaning toward a contrarian economic theory of an exchange of value not directly controlled by any nation, founded upon computational characteristics of immutability and transparency, which displaces the post World War II fiat monetary system. Blockchains and cryptocurrencies are also becoming deeply ingrained in the evolving internet industry and even the sphere of central banking.
Just like fiat currencies, not all cryptocurrencies are created equal and volatility is a byword for “crypto”. To tackle volatility, stable coins exist. Tether, for example, is reputed to be backed by the US dollar and has taken centre stage of so-called stable coins, but with a market capitalization in the tens of billions of dollars, questions have been asked on how much Tether is actually backed by US dollars in reserve accounts. These questions have been the speculation of the crypto community for some time and ambiguity over reserves is an indication of risk for any financial instrument.
Clearly there is a need for an alternative stable currency in the crypto space. A hybrid of gold, stored in vaults yet presented as a digital asset, easily transferable but yet tangible when held for consumers, has enormous appeal, not just as a stable coin but as a tokenized asset that is backed by a liquid, recognised global commodity with entrenched trading volumes in markets worldwide.
Joseph Parry, the 19th century Welsh composer once said, “Make new friends but keep the old. Those are silver, those are gold”. At Migom Bank, the management believes in both the old and the new, which can be vividly represented by the hybrid of gold and cryptocurrency. Supplementing a bullion offering with blockchain technology and offering a digital gold coin, creating a brand new asset class, which can very well fit both the conventional regulated mentality of global financial institutions as well as the innovation-prone mindsets of the millennials and Gen Zs.
Migom Bank is not alone in recognising gold as a digital asset; more gold backed coins are reputed to be entering the cryptocurrency markets. This in itself is favourable for gold as gold-backed crypto may cause tightening on the supply side from the new demand, which could well be an additional positive driver on the gold price. Crypto-gold will likely have extra appeal over stable coins for some, as it has the ability to offer additional upside in contrast to stable coins pegged to the dollar, which seems to be heading towards an almost inevitable dilution of value over time.
In the world where fiat currencies are increasingly less immune to the test of time, the stability of government-backed bonds is questionable in the view of the threat of sovereign debt defaults. New cryptocurrencies remain inherently volatile while their place in financial history is still forming, yet gold will always be gold and decentralised finance may help bring a millennia-old medium of value storage and exchange back to the forefront of the global economy.