FX International Payments
By Mike Faden
Other emerging options for trading "digital gold" include an Australian collaboration between one of the country's two major mints and a financial-technology (fintech) company.2 It does not use blockchain transactions, however.
In addition, roughly 20 new and planned "gold-backed" cryptocurrencies are at various stages of development by a variety of companies, including existing gold-related businesses as well as startups. Some of these are described by proponents as presenting less risk than other cryptocurrencies because the tokens transacted on their blockchains are backed by physical assets.3
The Royal Mint manufactures the U.K.'s currency and also sells bullion, commemorative coins and other products. Using its new blockchain system, the Mint plans to make gold transactions easier, more transparent and less expensive.
The new system, developed in collaboration with the Chicago Mercantile Exchange and using technology from two blockchain startups, transacts blockchain tokens called Royal Mint Gold (RMG).4 Each token is a digital representation of one gram of real gold stored in the Mint's facilities. The Mint says the price of RMG will closely track the spot price of gold, which was roughly $43 per gram in April 2018.5 Pre-launch reports suggested that the Mint would create up to $1 billion in tokens.6
Investors will be able to buy and sell RMG digital tokens via an institutional trading platform; trades will be recorded as blockchain transactions.
RMG could help the Mint continue to grow its bullion business; in 2016-17, the Mint's sales of gold and silver bullion accounted for the bulk of its revenue, growing 64 percent to about £317 million ($450 million) and representing 5.4 percent of the global bullion market.7 As the Mint's chairman Peter Warry stated in its 2016-17 annual report, "We believe this [Royal Mint Gold] will offer institutions and private investors an entirely new way to hold and trade gold and, if successful, could significantly rebalance our business away from circulating coin where we know growth will be harder to obtain."8
According to the Mint, transactions in its blockchain system offers advantages over other methods for trading gold.9,10 For example, it says there are no annual fees for owning RMG tokens, compared to annual fees of 0.25-0.5 percent for gold Exchange-traded Funds (ETFs) and annual secure storage fees of 0.12-0.25 percent for gold bars. That translates into a higher return on investment for RMG, because over time the compounding effect of fees significantly reduce the overall return, the Mint says. With RMG, traders can also buy smaller amounts of gold in blockchain transactions, with real-time pricing available during exchange opening hours. The Mint also says that unlike shares in a gold ETF, RMG can be exchanged for physical gold, although there will be a "fabrication charge" for anything smaller than a 400-ounce gold bar.
"While things have improved in terms of gold trading over the centuries, it's our view that it still remains difficult and relatively expensive as a commodity to invest in ... Gold is known in the industry as a negative-return investment," David Janczewski, director of new business for the Royal Mint, told Reuters. "What we're trying to do with the announcement of Royal Mint Gold – or RMG – is to really address this issue and offer a better way to invest in solid digital gold."11
Another service involving a large mint is InfiniGold, a new service from an Australian fintech in collaboration with the Perth Mint, which is Australia's official bullion mint and exports more than AUD 18 billion ($ 14 billion) of bullion bars and coins to more than 130 countries each year.12,13,14
According to its developers, the technology will use encrypted digital certificates that are stored within a digital vault on the owner's smartphone, and can be traded using a smartphone app. Like the Royal Mint system, InfiniGold is designed to allow the user to buy and sell gold in real-time transactions based on the spot price at the Perth Mint. The certificates represent real gold stored at the Mint's facilities; investors can opt to collect their physical gold or have it delivered.15
As in the U.K., officials at the Perth Mint focus on the attractiveness of its system for gold trading. "We certainly try to make it easier and easier, within reason, for people to access precious metals. This would just be another way for them to do it," according to the Perth Mint's chief executive.16
Though both the Royal Mint and the Perth Mint emphasize that their digital tokens are essentially just ways to trade gold, other companies are launching gold-backed blockchain tokens and describing them as cryptocurrencies. Some proponents suggest that because of this, their value may be more stable than other cryptocurrencies – although there are still risks that may vary depending on the company.17,18
Notably, even Royal Mint and Perth Mint executives have highlighted the fact that – unlike cryptocurrencies such as Bitcoin – their tokens are backed by real gold. "The difference between what we're doing and other crypto digital assets is that we're a physical tangible asset. One gram on our blockchain represents one gram physically in our vault. So it's real gold you're holding when you're holding our RMG," one Royal Mint expert told Express.co.uk.19
Added a Perth Mint executive in an interview with Australia's ABC News: "If you use precious metals to back something on blockchain or something that is allied to blockchain, it retains its intrinsic value, unlike the offerings from Bitcoin and Ethereum, which really rely on everyone believing that there's something behind it."20
According to Goldscape.net, roughly 20 companies are planning on developing and issuing "gold-backed" cryptocurrencies. With some of them, a token corresponds directly to an amount of real gold; others use a mixture of different assets to back their blockchain transactions.21 While some are startups, others are offshoots of established gold-related businesses; one of those says that the price of its tokens is expected to track the price of gold, and therefore remain more stable than other cryptocurrencies.22
A growing number of companies are aiming to make it easier and cheaper to buy and sell gold, by allowing businesses and individuals to directly trade "digital gold" in blockchain transactions. Other companies are developing and issuing "gold-backed" cryptocurrencies.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. Royal Mint Gold, Royal Mint; https://rmg.royalmint.com/wp-content/uploads/2018/01/RMG_Factsheets_Brochure_JAN18-Digital-Gold-v3.pdf
2. “InfiniGold launches digital gold with The Perth Mint,” Perth Mint; https://www.perthmint.com/media-release-InfiniGold-and-TPM-digital-gold-cert.aspx
3. “A guide to gold-backed cryptocurrency,” Goldscape; http://www.goldscape.net/gold-blog/gold-backed-cryptocurrency/
4. “RMG FAQs,” Royal Mint; https://rmg.royalmint.com/faqs/
5. GoldPrice.org; https://goldprice.org/gold-price-per-gram.html
6. “UK's Royal Mint, CME Group launch blockchain-based gold trading platform,” Reuters; https://www.reuters.com/article/us-gold-blockchain-royal-mint/uks-royal-mint-cme-group-launch-blockchain-based-gold-trading-platform-idUSKBN13O0M4
7. The Royal Mint Limited: Consolidated Annual Report 2016–17, Royal Mint; https://www.royalmint.com/globalassets/the-royal-mint/pdf/royal-mint-limited-annual-report-16-17.pdf
9. “Benefits of RMG,” Royal Mint; https://rmg.royalmint.com/why-rmg/
10. Royal Mint Gold, Royal Mint; https://rmg.royalmint.com/wp-content/uploads/2018/01/RMG_Factsheets_Brochure_JAN18-Digital-Gold-v3.pdf
11. “UK's Royal Mint, CME Group launch blockchain-based gold trading platform,” Reuters; https://www.reuters.com/article/us-gold-blockchain-royal-mint/uks-royal-mint-cme-group-launch-blockchain-based-gold-trading-platform-idUSKBN13O0M4
12. “Australia’s Biggest Gold Refiner Is Developing Gold-Backed Cryptocurrency,” Medium; https://medium.com/@cryptolook/australias-biggest-gold-refiner-is-dveloping-gold-backed-cryptocurency-79f1938c3a5d
13. “Perth Mint,” Wikipedia; https://en.wikipedia.org/wiki/Perth_Mint
14. “InfiniGold launches digital gold with The Perth Mint,” Perth Mint; https://www.perthmint.com/media-release-InfiniGold-and-TPM-digital-gold-cert.aspx
15. “About Us,” Infinigold; https://www.infinigold.com/about
16. “Cryptocurrency backed by gold being developed by Perth Mint to entice investors back to precious metals,” ABC News; http://www.abc.net.au/news/2018-01-24/cryptocurrency-backed-by-gold-being-developed-perth-mint/9352036
17. “Interview with Anthem Hayek Blanchard on AnthemGold,” Anthem Vault; http://news.anthemvault.com/interview-anthem-hayek-blanchard-anthemgold/
18. “A guide to gold-backed cryptocurrency,” Goldscape; http://www.goldscape.net/gold-blog/gold-backed-cryptocurrency/
19. “Bitcoin price BOOST: The 1000 year old business joining Cryptocraze with a KEY difference,” Express.co.uk; https://www.express.co.uk/finance/city/911886/Bitcoin-price-Ripple-price-Binance-ethereum-price-cryptocurrency-Royal-Mint-Gold
20. “Cryptocurrency backed by gold being developed by Perth Mint to entice investors back to precious metals,” ABC News; http://www.abc.net.au/news/2018-01-24/cryptocurrency-backed-by-gold-being-developed-perth-mint/9352036
21. “A guide to gold-backed cryptocurrency,” Goldscape; http://www.goldscape.net/gold-blog/gold-backed-cryptocurrency/
22. “Interview with Anthem Hayek Blanchard on AnthemGold,” Anthem Vault; http://news.anthemvault.com/interview-anthem-hayek-blanchard-anthemgold/