For the world’s longest-running medium of exchange, it’s surprising how often allocated physical gold represents a bit of an unknown quantity to would-be investors and financial companies alike.
How much physical gold is there?
How do you buy it?
When you buy gold, does it arrive in the post?
To compliment the in-depth learning material available in The Goldex Academy, we’ve just launched The Gold Guide. Our guide takes you on a 10-min speed-read through the gold industry from mine to vault. Get a copy through the form below:
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For now, we want to dispel three of the most common misconceptions surrounding gold that we face when talking to financial companies that wish to integrate with the Goldex multi-dealer marketplace.
1. Gold always means 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. It’s an IOU.
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 still legally belongs to you. [By the way, you can buy allocated gold through our app].
2. Gold is a niche industry
Let’s look at the allocated physical gold market. Every single day, £4.50bn 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 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.
So how do we fix the access problem? Providing equitable access to the allocated gold market is why Goldex exists. We have built a marketplace with multiple dealers, which ensures the gold buyer gets the best price every time. Fintechs and other financial companies can now integrate with us in a matter of weeks. Their customers can then invest in as much or as little gold as they like. Just like high-net-worth investors have been doing for years.
If the above three misconceptions were of interest, we have many more articles and documents you might enjoy. Here are a few:
– The Goldex Academy: go from beginner to pro on gold at your own pace.
– The Goldex blog: recent topics such as Basel III, ‘crypto vs gold’ and more.
– The Gold Guide: take 10 mins to get a firmer understand of everything gold. Add your email below:
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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.
