Gold’s Evolution Into the Digital Age

Four years ago, the U.S. and its allies did something that they’ve never really done before at such a scale. 

They froze about $300 billion of someone else’s money. 

You see, Russia had socked away hundreds of billions of dollars in reserves, believing they were keeping it safe for a rainy day. The money was spread across a variety of vehicles, from foreign banks to foreign bonds. 

Then, almost overnight, Putin woke up and found that his money wasn’t exactly his anymore. 

All it took was a few keystrokes in Washington, Brussels and London, and suddenly every cent was stuck, frozen in place.

Every other central bank on Earth sat back and watched it happen, each one simultaneously learning the same lesson. 

That is, that their dollars, euros, government bonds, any of it, only truly belongs to you as long as they let you have it. 

In a nutshell, their cash is nothing more than a promise that can be revoked at the flip of a coin. 

In the past, gold has always proved to be the solution to this problem. After all, nobody can freeze your gold, sanction it, or delete it with a policy memo.

And that’s one good reason why central banks have been buying it at a record pace ever since.

But here’s the catch… gold does have a secondary problem, one that has never bothered a central bank that had its precious metal sitting in a vault in Zurich. 

Rather, this is a problem that affects both of us. You see, one of the issues is that gold tends to be quite heavy, hard to verify, and expensive to store. 

And good luck trying to send a fraction of an ounce to anyone with any urgency. 

Today, that problem is quickly disappearing. 

The veteran members of our investment community here know where this story is going.

The natural evolution of gold markets has always been to go digital. 

Of course, by that I don’t mean some ETF that owns gold on your behalf. Instead, I’m referring to the tokens bought and sold on public blockchains, and specifically where each one represents a specific, AUDITED amount of gold. 

Hold it, and you own a piece of the metal, and there’s no fund manager standing between you and that gold. 

Right now, only a small handful of products dominate this space, which together are worth somewhere north of $4 billion and control nearly the entire market. 

This is more than a neat piece of financial engineering, too.

By that, I mean something previously unheard of for gold bugs: Fractional ownership. 

Now, you can buy a sliver of a bar of gold for pennies, not thousands of dollars. 

That alone opens gold up to a generation of investors who never had the capital, or the desire, to buy a full ounce at a time.

The trick isn’t just solving one of the difficulties of owning gold, but to get them all. 

The curse of instant, global settlement has been one of those issues. The shipping, transport (think armored trucks), multi-day delays for a wire to clear — all of these concerns go up in smoke when you work on the blockchain. 

Slowly but surely, crypto lenders have begun accepting tokenized gold as loan collateral, meaning your gold can now work for you, earning yield or backing a loan, instead of just sitting quietly in a safe deposit box.

And the growth we’re witnessing is backing this up well as the entire tokenized gold market topped $6 billion earlier this year. 

In the first quarter alone, we saw trading volume jump five times faster than physical gold demand. 

Even the World Gold Council (yes, the same organization that helped bring physical-gold ETFs into the mainstream twenty years ago) is now studying how to standardize digital gold products across the industry. 

Buckle up, it’s going to be one helluva ride. 

Don’t get me wrong, dear reader. You and I both know full well that physical gold markets aren’t dead…. not even close. 

Nobody should be suggesting that. 

However, we’d be remiss if we didn’t see the market evolving, which is going to have a powerful impact on the next generation of gold buyers. 

Think about it… 

For decades, if you wanted gold without dealing with bars and coins, you bought a fund. That fund gave you a claim on gold, wrapped in a stock ticker, traded during market hours, subject to management fees, and settled the old-fashioned way. It worked. 

It’s slowly realizing how antiquated and in need of an update. 

That’s the world that digital gold is quickly gaining traction inside. 

Pay attention to where the infrastructure is being built, and watch where the capital is flowing fastest. 

Physical gold proved (and again in 2022) that it’s the one asset nobody else can freeze. 

Perhaps it’s time to check this one out for yourself.