The last decade has been a tough time to be a saver, but the new phenomenon of negative interest rates combined with recent resurgence in the cost of gold causes savers to look again to gold as a savings vehicle capable of preserving purchasing power.
All which makes the timing from the recent launch of BitGold, a new digital saving and payment service, look prescient. First, be aware that BitGold isn’t the same as the better known digital currency called Bitcoin. However at a briefing Tuesday morning, coincident using the annual Prospectors and Developers Association of Canada conference, BitGold executives credited Bitcoin for raising awareness about network-based alternatives to the central banking system.
The rise of so-called “fintech” (financial technology) has also made it possible for BitGold to quickly build a network effect. It’s provided by GoldMoney Inc., a worldwide gold and silver custodian based in Toronto (trading as XAU on the TSX Venture Exchange). The company has raised $70 million and hopes to be on the TSX soon.
Until the early 1970s, paper money was backed by physical gold; then, when Richard Nixon took the U.S. dollar off the gold standard, most nations moved to “fiat” currencies backed by simply government promises. Now another phase of digital currency ledgers is creating a comeback for gold, albeit outside the central banking system.
Personally, I’ve always been a believer to maintain roughly a ten percent overall allocation to gold or precious metals. Until now, it was achieved either with gold mutual funds or ETFs, or by holding coins or bullion directly.
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Gold often zigs when other markets (for example U.S. stocks) zag, so it can offer a stride of diversification and, therefore, safety. Throughout the 2007-2008 financial crisis, for instance, gold, cash and bonds were about the only asset classes that rose when most other assets fell. While gold has had a tough go from it the final 2 yrs, so far in 2016 it has been strong, even in accordance with the Canadian dollar.
With BitGold, customers’ are credited with real physical gold, stored at any one of seven Brink’s locations in major global financial centres. Customers may also choose to take physical delivery.
BitGold’s global gold network is almost three quarters of the way to some million users (739,252 at last count) in 150 countries. One million users has shown a critical threshold for any selection of tech companies, including PayPal (which took 2 yrs to get there), Facebook (under a year) and Uber (1 . 5 years) – BitGold is at spitting distance of this milestone after just nine months.
Through this gold-based global network, you can purchase or sell gold in a one per cent transaction cost in every direction.
Early customers are mining companies, which permit employees to be paid wholly or in part in BitGold, or permit shareholders to receive dividends in BitGold.
One reason the firm made a decision to go public early was to assure customers of regulatory compliance. There isn’t any counterparty risk because – unlike ETFs that are essentially paper offers to deliver real gold – BitGold customers have direct ownership of the underlying metal. It’s “fully reserved, allocated and redeemable under Bailment law,” the company’s materials state. Customers do not pay for that storage at Brink’s – it’s included in BitGold – and the holdings are fully insured. BitGold could be transacted in additional than 100 currencies around the world.
This happens in just three steps: first, you purchase the gold in the funding source of choice for a charge of 1 per cent of gold’s spot price; then you definitely select the currency in any amount; and lastly you select the Brink’s vault location. You are able to later sell your gold back in your bank’s currency, but in addition a charge of 1 percent from the spot price. In case your intent would be to build long-term savings, you can do so with recurring bank transfers daily, weekly or monthly.
BitGold also provides a gold-backed prepaid GoldMoney MasterCard (free when you open a merchant account), which can be employed for everyday spending all over the world. It’s also launching a worldwide Business Payments business.
Financial Post
Jonathan Chevreau may be the founder of the Financial Independence Hub and could be reached at jonathan@findependencehub.com
