Gold is the premier asset to hold if you are looking for a stable store of value. Owning gold and storing gold, however, are two separate logistical operations that have to be part of your arrangements.
Blockchain gold ownership is a revolutionary concept that is easily better than alternative storage options. The default option is storing gold yourself.
Should you take this path the stakes, as Mike Clark, President and General Manager of Diamond State Depository, points out, are incredibly high:
“If you lose it, it’s gone. It is not like your stock certificate, where you can pay an administrative fee and have it replaced. If you lose your 10-ounce gold bar, it’s gone. You can insure them under certain circumstances. We ship precious metals to people who want to bury it in the backyard, literally, or store it in their garage in a hidden place. They feel good about it because it’s within reach, but it’s fraught with all kinds of problems.”
His statement brings out the irredeemable aspect of unsecured gold storage. Gold is an independent asset whose value is inherent. Storing gold at home is a high-risk proposition.
Even if you manage to provide the necessary security, it is an expensive affair that can negate the cost-benefit of your gold holdings, especially for small to moderate amounts of bullion.
So, what’s the next best thing? It is having someone reliable and trustworthy securely store your gold. That may sound easy, but the devil is always in the details.
Delegated Gold Storage
If storing your gold is risky to start with, transferring your bullion to an unreliable third party is even worse. In modern gold investing, an investor has many storage options. The reason for this diversity is that most of these methods have unique pros and cons.
Some ways extend back in time, while others have only recently become possible with the advancements in and convenience of technology.
Let’s have a look at a few notable techniques:
1. Safety Deposit Boxes and External Vaults
Safe deposit boxes are just an upgrade to storing gold at home in a locked box. Old-school banks and safe deposit box companies offer this service for those seeking to store gold bars, gold coins, and other precious metals.
The catch is that the bank provides a secure box with a key that the owner singularly possesses, and only they know the contents of the box. For this service, you pay an annual “rent.”
These boxes are more secure than your home storage. However, they are only as safe as the bank is; they will not insulate your gold from being stolen during heists that target safe deposit boxes.
In 2015, a famous robbery of a deposit box company in the Hatton Garden jewelry district of London saw losses of millions worth of gold and other jewelry items. Moreover, the bank can open up your box in case there is a law enforcement raid under the pretext of looking for illegal items.
Similarly, should the bank collapse or close in the event of a financial crisis, it isn’t always straightforward to access your bullion.
The ultimate downside to this kind of storage is the lack of liquidity and tediousness in getting your gold on the market.
2. Gold ETFs
Gold ETFs are a popular way to own gold for market traders. Exchange-Traded Funds (ETFs) that have gold holdings remove the logistical problems one could incur in storing gold personally or in a secure location. Besides, you have better asset security since it is up to the fund managers to actually store the gold.
Accordingly, it has become a pretty popular way to invest for those seeking to add gold to their portfolio without the logistical risks of owning physical gold. Gold ETFs like the SPDR Gold Shares exchange-traded fund (ticker symbol GLD) has enjoyed remarkable success in the past decade of operation. However, there are potential downsides to reliance on gold ETFs.
Gold ETFs hold physical gold to back up their shares. The ETF’s performance tracks gold prices. Investors typically don’t have a direct claim to the underlying gold, even though the ETF trades like a stock.
Using the example of GLD, you can only request physical delivery of metal if you own a minimum of 100,000 GLD shares. To have this amount of stock, you need about a million dollars invested in the ETF. Granted, the ETF still provides small shareholders the right to settle in cash, which is not the same thing.
Still, the fact that GLD and gold ETFs are low cost and convenient makes them a no-brainer for a lot of investors. Those seeking a convenient way to trade in directional gold price movements, including in options, can appreciate gold-ETFs over bullion. It provides the exposure to gold prices that these traders need.
However, for those interested in owning gold as a safe-haven asset, the ability to redeem your gold is indispensable. ETFs are structured in a manner that skews toward those who want to trade and gain exposure to gold prices rather than actually holding it, except for high net-worth investors.
This dichotomy, therefore, makes gold ETFs incredibly popular as well as flawed depending on your interests.
3. Blockchain Gold Storage
The former two ownership models represent two distinct options: one where you hold your gold but incur management and security costs with limited market exposure, and another where you have excellent market exposure but can’t necessarily redeem your physical gold on demand.
What’s the solution to these shortcomings? It is an ownership model that is secure, convenient and gives you the ability to trade and redeem gold easily. Enter blockchain gold ownership.
Blockchain gold ownership is a fantastic option for the following reasons:
1. Security
Blockchain storage is more secure than the physical storage of bullion. Besides, each token owner has the assurance of the actual amount of gold in storage through regular audits of the blockchain platform’s gold holdings.
In comparison to safe deposit boxes and vaults, blockchain storage is much safer. Digital gold complies with specific financial regulations meaning that you are sure of secure, aboveboard operations.
2. Storage Costs
For third party bank storage, you have to pay periodical rent for their services. This factor inherently makes it more expensive than digital gold storage. If you take insurance for your gold, you pay premiums to keep the insurance running.
Therefore, either form of third-party storage incurs some storage costs. Blockchain gold storage is relatively cost-free, apart from the initial token purchase. Holding gold personally also means extra charges when making shipments.
3. Trading and Liquidity
Liquidity is a big downside for physical gold. Blockchain gold brings the convenience of instant market access through digital token trading.
Returning gold to dealers when you want to trade physical gold is both cumbersome and unsafe. Street dealers often undertake extra precautions like refining to verify quality.
Blockchain gold storage gives you instant market access without the hurdles of street dealers and possible fraud. With digitally-linked gold tokens, you can make trades from the convenience of your smartphone. Additionally, it gives you access to a global market without exchange rate variations.
4. Redeemability
The three advantages above distinguish blockchain ownership from physical storage. Redeemability gives blockchain gold the edge even over large gold ETFs.
This quality essentially means that at any time, you can ask for your tangible gold in exchange for valid tokens. Moreover, even in the unlikely event of the bankruptcy of the token issuer, you can always redeem your gold, which is audited on a regular basis.
To Wrap Up
Blockchain ownership represents an exciting addition to gold trading. With gold prices trading at historic highs, many want to get into this market to explore the advantages of owning the precious metal.
While some street dealers may offer terms that sound too good to be true, the safe and reliable bet is indispensable in precious metals and jewelry trading. Blockchain gold ownership provides the ultimate security for both those who seek to hold gold as a store of value and those who want instantaneous exposure to the markets for gold trading.
Ultimately, these are what most people who hold gold look for. This utility is the perfect solution to your security and convenience needs.
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