Riding Through the Global Economic ‘Storm’ with Digital Gold
Gold price rises as global recession draw near.
The COVID-19 pandemic has shaken up the global economy and pushed the world into a lockdown against the backdrop of last year’s — China-US trade war, Brexit and geopolitical turmoil. In March 2020, the Federal Reserve cut interest rates to zero and launched a massive quantitative easing program in the face of an imminent global recession — and two weeks ago, the International Monetary Fund (IMF) predicted that the pandemic will cause the economy to face its worst recession since the Great Depression. Amidst today’s deteriorating global economy, investors are looking to commodities — in particular gold, due to its safe-haven status.
Wanting to benefit from gold’s safe-haven status, panicked investors across the globe are flocking to the refuge of this shiny yellow metal, causing gold dealers to suffer shortages as a result of the sudden surge in demand and a diminishing supply in the market. Gold derivatives such as the unallocated OTC gold spot market and COMEX futures market no longer matched the price of physical gold. The spread of traditional gold widened and led to the spike of traditional gold price. Eventually, the price of gold bullions was decoupled from gold derivatives.
Gold continues to be a good store of value and hedge has proved to be efficient
Despite the economic slump caused by COVID-19, the price of gold is continuing to rise. The long-term price stability of this time-tested asset has also proved to be efficient as an investment hedge. World Gold Council compared hedges across different metrics and the performance of hedging investment with gold is better than a diversified hypothetical portfolio.
Investors are buying gold as it is a safe haven asset, a great store of value that defends against inflation. With the quantitative easing program, the Federal Reserve is creating credit out of thin air as what happened during the 2008 financial crisis. This could possibly lead to inflation due to the increase in money supply. Coupled with zero interest rates, there will be increased debt and eventually an increased government deficit.
Central banks’ appetite for gold provides a stable base
Central bank gold reserves are rising over the years. Their global reserves had grown by 650.3 tonnes, the second-highest annual total for 50 years. With central banks as the net buyers for the 10th consecutive year, gold is expected to provide a stable base for the gold market in the long term as central banks hold on to more gold.
Unlocking the booming gold industry on Blockchain
With the current state of the economy, one major issue of buying physical gold becomes apparent as gold dealers are unable to move gold across borders. Deliveries have to come to a complete halt and bullions are closed as gold doesn’t come under essential items. This issue can be solved by placing gold on the digital realm with blockchain technology.
Digital gold is highly portable. Anyone with an internet connection can trade gold online without the inconvenience associated with storage and portability. Blockchain enables digital gold to be transferred across international borders.
Digital gold offers investors greater utility and liquidity allowing anyone to trade, spend, hold, and micro-invest their savings into the world’s most time-tested asset class. This opens up an opportunity for as an investor to trade in the gold markets no matter where you are.
Digitalising gold on the blockchain provides investors a stable currency, one that fiat currency cannot offer. It is a stable currency through a safe haven asset. A stable digital currency that is pegged to gold offers the most suitable way to hedge investment in a time of a recession. It is apparent that investing in digital gold is necessary at this point.
Holding gold-backed token in times of economic volatility
The blockchain technology provides a trustworthy way to record transactions and ownership of gold. It is the new gold standard.
Digital gold is more mobile than physical bullion. Digix’s DGX can be transferred across international borders as easily as sending an online payment or a bank transfer — opening up gold markets to globalisation through the power of DeFi and simplifying the process of using gold holdings to pay for goods and services. Using gold as an alternative to fiat has never been so easy.
DGX acts as a bridge between the real world and the digital realm by bringing a safe haven store of value onto the blockchain. As gold has a value that is readily understood and accepted by all cultures and demographics, barriers to entry to the retail gold market are reduced for the average person, who is now able to hold gold-backed tokens indivisible form. There are a plethora of use cases for both individuals and institutions: Portfolio diversification, wealth preservation, payments, collateralization for lending and other financial products, and more.
In time to come, digital gold might be instrumental in bridging the old financial system and the new digital system, with its utility unlocked for secure payments and all other creative uses such as Bullionix.
What makes DGX special?
DGX is built on Ethereum and its proof of provenance protocol on the Ethereum blockchain ensures all gold tokens issued are 1:1 with the underlying physical precious metal. All movements of gold bars from procurement to the storage, issuance of DGX, and any associating documentation are uploaded onto IPFS and timestamped on the Ethereum blockchain to guarantee its immutability. All information is available 24/7 to the public and tamper-proof with blockchain technology.
Digix is backed by trust — working exclusively with industry-leading partners and is in compliance with Singapore requirements, one of the world’s most respected regulators. The transparency, security, and traceability of blockchain ensure that DGX tokens can be transacted and transferred with full visibility and audibility.
Digix believes that the value of gold should be accessible to everyone. By bringing the value of gold into the digital realm, and leveraging the power of decentralised finance, Digix presents consumers and investors with an easy-to-use, better money that is fit for a digital age.
*Performance between March 2000 and March 2020. The hypothetical portfolio is based on Willis Towers Watson Global Pension Assets Study 2019 and Global Alternatives Survey 201. Performance is based on blended weights of the hedges ranging from 2.5% to 10% of the portfolio, proportionately reducing the rest of the portfolio by the initial weights. ‘Returns’: average of cumulative and average returns; ‘Volatility’: overall portfolio volatility; ‘Risk-adjusted returns’: average of the return on risk, Sharpe ratio and information ratio; ‘Max drawdown’: the most the portfolio lost during any trough. See the Appendix and footnote 4 for definitions of ‘VIX short-term futures’ ‘CDS IG’, ‘CDS HY’; and ‘TIPS’.
Source: Bloomberg, World Gold Council
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