Gold in the Year of Pandemic: Challenges that defined digital gold’s shine
Marking a year of unprecedented challenges — from a global health crisis, a stock market crash and industries confronted with the new normal — in this article we’ll celebrate the digital triumphs that emerged, uncover how they shaped innovation and look ahead at the digital asset landscape of 2021.
Gold’s Rise Amidst Global Challenges
Like many other safe-haven assets, gold has had a spectacular year. For the first time on record, the precious metal soared beyond US$2,000 per ounce in August this year as investors sought gold to hedge against the pandemic stricken economy, raising prices as high as US$2,070.05. When mass lockdowns were enforced across the world, panic buying of the precious metal raked in a record-breaking US$23 billion of gold exchange-traded funds in just the first quarter of 2020 alone.
The surging demand for gold has shown yet again the tight relationship between gold and the health of the economy, in which gold prices swing upward during volatile market conditions. In times of crisis, investors flock to safe-haven investment alternatives, like in 2009, the Great Recession triggered a 12.8 percent increase in the price of gold as the US Federal Reserve made calculated moves to inject liquidity into the economy to ease the value of the US dollar.
In a similar rehash of history, the price of gold in this pandemic economy soared to new heights as the outbreak raged on, panic buying emptied supermarket shelves, the stock market crashed and investors sought out the recession-proof metal in a bid to safeguard their wealth.
Digital Gold: A Growing Asset Class
With the rising demand and interest in gold, the sector faced new challenges. Just like many others, traditional commodities were hit hard by COVID-19 and the gold industry was no exception.
Faced with restrictions, some mining activities and refineries came to a halt, as grounded ships and flights decreased transportation capacity and increased costs resulting in a physical supply shortage of gold. Yet, the demand for the precious metal remained at an all-time high as fears of economic uncertainty caused by the coronavirus continued.
Witnessing obstacles faced by the traditional gold industry, we are reminded once again of the promises of digital gold. With gold on the blockchain, digital gold can avoid supply chain disruptions, dodge high costs that often come with storing and insuring physical gold bullion and reach investors from all around the world. Investors can also purchase gold in smaller increments, widening the access to the precious metal and democratising its benefits all to enjoy.
As such, it comes to no surprise that during this period, Digix saw an uptick in DGX holders over the course of the outbreak. The rise in DGX users has also reaffirmed our vision and mission to champion financial inclusion by breaking down the barriers to investing and facilitating easier access for a wider pool of retail investors to access the promises of gold.
Bitcoin’s Rally and its Impact on Gold
As we continue to chart the rise of the yellow metal, bitcoin too has made its mark in 2020. At the start of the pandemic, bitcoin prices gained 30 percent from the end of 2019, marking a strong start for the cryptocurrency early on in the year. With no sights set on slowing down, the coronavirus rampage across the globe has pushed the historically volatile digital asset to trend consistently over the months while most of the world remained under lockdown.
The surprising stability of bitcoin moved in tandem with the safe-haven favourite — gold, raising questions as to whether bitcoin is closing up to becoming akin to the precious metal. Most recently, bitcoin rallied at an all-time high, breaking its prior record set in December 2017, reigniting speculations of the digital asset claiming the “digital gold” title once more.
Despite bitcoin being compared to digital gold, the systematically volatile asset has made it difficult to replace the yellow metal. Considering bitcoin’s 6-year high volatility earlier in the year and consistent price fluctuations, the cryptocurrency still has a long way to go before it can match gold’s consistent track record and strong investor reputation to fairly claim the title of “digital gold”.
As we continue to battle the challenges of the coronavirus, it will take months before we return to life as we knew it. Even with a long-awaited vaccine, it’s probable that gold will sustain its high prices and be strengthened by investor confidence for its reliable safe-haven status.
New Year, New Obstacles, New Heights to Reach
As we look to welcome 2021, the digital gold industry will be pressed with new challenges. With the rising demand of digital gold, it will become more pertinent to streamline the user experience, improve liquidity and scalability and ensure the authenticity of gold. With newer innovation and greater adoption of digital technologies, we can expect digital gold and other digital assets to enjoy greater:
- Accessibility: As we witness the mass push for digital options from payments to banking and investing, digital gold has seen a substantial increase in volume from the previous year. We can expect a greater demand for digital assets from Latin American countries and Indonesia as crypto adoption continues to gain traction across these nations. Digital gold also has a promising future in Indonesia as it gains momentum from the backing of regional powerhouses like Gojek who recently forayed into the digital gold sector, launching GoInvestasi. With the gaining investor interest in digital assets and the increased number of investment options, accessibility to digital gold is expected to increase as the industry continues to mature.
- Market Infrastructure: Major banks from across the world are already looking towards digital assets. From Banque de France looking to use the digital euro in interbank settlements to China’s central bank’s ambitions to introduce a sovereign digital currency and DBS’s recent launch of a digital exchange, it is becoming more apparent that digital assets have the support from traditional financial institutions. With the backing of reputable institutions, the digital assets market will gain greater reputation, demand and interest, pushing the industry to higher frontiers.
- Funding: With the growing importance of digital assets, more governments are launching blockchain programmes to support developments in the space. The Singapore government, for example, has recently launched a new research programme with S$12 million in funding, aimed to commercialise and encourage the adoption of blockchain technology. Having the growing support from regulatory powers and governments, the digital assets sector can expect to grow even further in a conducive blockchain ecosystem.
As we look forward to the year ahead, we are confident that the digital gold landscape will get the attention of the investment community, governments and leading institutions to continue its mission to democratise wealth and investment opportunities for all.
Disclaimer: This article is written to express my own opinions. It is not a piece of investment advice from Digix. Digix’s blog may contain statements and projections that are forward-looking in nature, and therefore, inherently subject to risk, uncertainties and assumptions. Do take into consideration your own unique investment situation, objectives, risk tolerance and investment horizon in any investment decision.
Digix, incorporated in Singapore in 2014, is the blockchain company behind the world’s first gold-backed digital asset class. Digix uses blockchain to account for the authentication and provenance of 99.99% investment-grade gold bullions. Physical gold bars are registered on the blockchain, and every 1 gram of physical gold registered is pegged to 1 DGX token. The physical gold bars are kept in vaults located in Singapore and Canada.
Digix recently won the 2020 S&P Global Platts: Precious Metals Industry Leadership Award and was a finalist in the 2016 Singapore MAS Fintech Awards.
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