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November 19, 2020

Now is the time for tokenized precious metals to shine

Over the last eight months as the world has grappled with the impact of the coronavirus, precious metals have been enjoying a bull run as investors have flocked to safe-haven assets such as gold, silver and palladium.

And while some commodities experts voice concerns about potential over-pricing, many analysts remain bullish about the outlook for gold through 2021. Goldman Sachs believes the gold market will likely follow the same path as it did after the global financial crisis in 2008.

Indeed in their 13 November note, analysts Mikhail Sprogis and Jeffrey Currie said: “The structural bull market for gold is not over and will resume next year as inflation expectations move higher, the US dollar weakens and EM retail demand continues to recover.” Adding the investment bank maintains its 2021 gold price target of $2,300 an ounce.

Their comments were echoed by precious metals dealer, Direct Bullion, who stated (16 November) that the price of gold will “break new records in 2021”, with lingering economic uncertainty driving demand for precious metals in the new year. Adding that platinum might also “surge” with the metal playing a “pivotal role” in the shift towards sustainable fuels (precious metals act as a catalyst for hydrogen fuels).

Gold has long been a trusted store of value for investors. And with the outlook for gold and other precious expected to be strong for the coming year, we at 2030 Group and Mozaic Markets think the time is right for gold to be tokenized.

What is a gold token?

A gold token is what we call a “digital twin”. It is not a synthetic instrument. It is not “crypto” just because it uses blockchain technology to store data, information on the physical gold and create the token.

Simply put, a gold token is a digital representation of the actual gold which can be bought and sold in the same way that you buy and sell physical gold.

It is just a digital replica of the real-world asset, in this case a bar of gold, with the physical gold acting as a form of collateral and the investor able to request physical delivery of the gold. A one-to-one twin. One physical (gold bar) and one digital (gold token).

Gold tokens would provide investors with an alternative way to place bets on specific metals rather than buying stock in individual mining companies.

Tokenization could also help solve the unexpected investor accessibility issues seen this year caused by the pandemic. Specifically, the scarcity of physical gold on the market as mines temporarily closed, as well as restrictions on gold’s ability to be transported as international travel ground to an abrupt halt.

Tokenization would help to solve these accessibility problems as gold tokens are digital, not physical. Same as an equity or security. Tokens provide an additional layer of protection against supply chain disruptions as the metal can be traded from within the vault.

Investors just need a desktop or mobile device, and access to a specialised financial marketplace, like Mozaic Markets, containing all the financial and legal information needed to conduct a gold transaction.

Blockchain can reduce fraud concerns

In addition to creating a new financial mechanism for investing in gold, blockchain also has the potential to completely transform the precious metals supply chain through enhanced transparency, accountability and trust.

Specifically, around the provenance of precious metals through using new decentralized identity technology, like that of IDWorks, and securing all relevant information through the use of a private, permissioned blockchain, such as Corda’s R3 network.

Transactions requiring transparency, which once stored on a distributed ledger, are secure and immutable, whilst personal information can be kept off ledger and private whilst still being verifiable amongst all parties.

We believe through digitizing gold and conducting transactions through a private blockchain, this could help to combat the forgery crisis that is quietly roiling the world’s gold industry with gold’s high price having triggered a boom in informal and illegal mining since the mid-2000s.

Gold tokens could be the smartest way to own gold

2020’s health crisis has reminded us all of many things. Some good, some less good. For investors, it has reminded us that gold remains an investment stronghold in times of uncertainty. And that trading physical gold in a pandemic can be difficult.

To overcome gold accessibility issues in times of crises when mining and travel shutdown, and maintain continuous market liquidity in precious metals, tokens could arguably be the smartest way to own gold and other precious metals.

If you are a gold refinery, trader or investor, it’s time to embrace new technology and tokenize your gold.

It’s not as difficult or costly to digitize your gold as you might think. Not to mention the reduced fees and settlement times when buying and selling.

To learn more about how to digitize gold and starting trading gold tokens, email talk@2030.io

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