1 — Inflation and safe-haven assets.
The world economy is undergoing a major crisis for two basic reasons: pandemic Covid 19 and the (presumed) war in Ukraina.
In the first case, the shutdown of all production has forced states to run for cover by putting more liquidity into circulation.
What is called Helicopter Money, or stimulus, has, at the financial level, a very specific purpose: by providing money to citizens, in the face of 0 production, it incentivizes more spending and thus faster economic recovery.
This is all at the theoretical level, but if we analyze the data, we realize the exact opposite.
The stimulus in the United States has been used as an investment in cryptocurrencies, while in Italy, fear of the future has reinforced a savings-oriented budget management.
Source:Further complicating the situation was the war in Ukraina, which brought the rising cost of procuring certain raw materials such as heating fuels and electricity generation. Many of us have witnessed this with utility costs rising by almost 100 percent.-
This scenario does not bode well: the GPD forecast was between 0 and +2.5, while in the second quarter of 2022, we had a decline of 2.1 percent, as we can see from the graphs.
Data in hand, even the IMF (International Monetary Fund) had to revise its U.S. growth forecast to +2.9 from +3.7.
The FED (Federal Reserve) is running for cover trying to curb inflation, which is soaring: in April 22 it recorded +8.3 percent compared to the same period in 2021.
The only way is by raising interest rates; and it has raised them by as much as 75 basis points (0.75 percent highest increase since 1994) with almost total certainty that the recessionary state will not be touched at all.
Meanwhile, the dollar, the world currency par excellence, inexorably loses purchasing power.
Source: In Italy the situation is a tad more serious; in fact, inflation is rising almost steeply:
This data does not give some peace of mind: inflation indicates the increase in prices of certain basic necessities that are listed in a particular group. Practically with inflation close to 12% we can safely assert that 100 € in December had a purchasing power of 96%, in December 2022, they had a purchasing power of 88%. 6% less!
2 — Gold as a safe-haven assets.
So what can we do?
The answer is to find the best method to make sure that our capital is not eroded by inflation.
The only way is to manage it in such a way that it can produce income at a rate very similar to that of inflation; therefore, we could turn to safe-haven assets: these are those assets that, in the long run, have an increase in value.
By definition, the safe haven asset known to everyone is gold.
But being able to secure one’s savings from inflation by exchanging them for gold is not quite so simple.
Let’s see why.
A clarification is needed: we are talking about physical gold and not a surrogate, which could be a CFD (Contracts for Difference) that is used only in trading and for a purely speculative purpose. The same goes for futures, which, although at expiration you receive the purchased product, is still a speculative maneuver of market forecasting.
Buying physical gold can only be done through licensed and authorized dealers, and it is not necessarily the case that all banks can do this.
Moreover, this type of gold has precise purity specifications; in fact, it cannot be less than 995 thousandths.
Gold can be purchased in two different formats: bars or coins.
Ingots
Ingots must have a purity of 995 thousandths and are made either by coining or by melting.
By minting, one starts from the solid and by pressure obtains the ingot (basically the same process by which fiat coins from all over the world are obtained) while by melting the gold in its liquid state is poured into a special mold.
Depending on the company that produces them, there are various sizes (by weight) for example: 2 gr, 5 gr, 10 gr, 20 gr, 50 gr, 100 gr, 1 kg, etc.
Above each ingot are the characteristic data, such as weight, purity and, as a guarantee of quality, the name or logo of the company that produces them.
Coins
Coins, unlike bullion, have a limited circulation and are reproductions of historical coins.
In this way, the nominal value of gold is also added to the collectible value of the coin, which is bound to increase in the long run.
The coins, therefore, have an added value compared to “simple” bullion.
As can be guessed, the details of the minting company are not given: in fact, a certificate is issued where all the “registry” data of the coin are given; including mintage and purity of gold, which, as with bars, cannot be less than 995.
Having clarified the possibilities of purchasing the precious metal, an additional condition is added: storage.
The storage of this material is advisable to entrust it to companies in the sector that have insurance and trained personnel, as well as security devices that the private user can hardly access; for example, safes with extremely high burglar-proof class and specially built places with all the necessary features for the purpose. What is commonly called a vault.
As we have been able to see, preserving one’s savings from the erosive force of inflation is quite articulate if not exceptionally complex.
In the field of precious metals, in addition to the gram, and particularly in gold, the troy ounce, which corresponds to about 31 gr in the SI, is also used as a unit of measurement (unit of mass).
Why gold?
As we know, since ancient times when trade had a certain evolutionary thrust, gold was used as a currency of exchange: depending on the weight of the coin, thus the amount of gold, a certain amount of any good was supplied in proportion to its value.
This was because gold, as a metal, had to be mined from mines or collected by sifting sediment from certain waterways; thus, in limited quantities and with a very high “cost” in terms of labor.
Nowadays, although mining technologies have evolved exponentially, costs have not decreased.
For these reasons, but mainly because of the difficulty of finding it and the scarcity make its value increase almost constantly over time.
If we go back to the graph I inserted just above, we can see that the gold exchange rate in August 2021, so with still the aftermath of the pandemic, was around $48, if we look toward the end of the graph, so about present day, we are around $58, so we can consider a 20% growth in about 2 years which, annually we can consider an AVERAGE growth of about 10%.
Below I will repost the graph from the previous article, and compare the growth in percentage value of the precious metal against inflation, we have the answer to our questions.
As we can clearly see, from December 2021 through November 2022, we had an increase of 8 percent; reaching the highest value of just under 12 percent. In this case, the data, given the current world situation (the pandemic and, subsequently, the war in Ukraina), have undergone rather sudden variations, but this helps us to understand that converting one’s savings into safe-haven assets, allows us to keep their purchasing power almost constant.
Now that we have made it clear how gold works as a safe haven asset and why to choose it, in the next part we will delve into the new blockchain technology to see what conveniences it offers and whether we can consider cryptos safe haven assets and why.
3 — Digital and Digitized Gold.
Source: Paxos Gold
In this regard, PAX Gold is a token representing a Troy Ounce of Gold coming into play, at the sharp end.
The troy ounce is a British unit of measurement that indicates the mass of valuables (metals and gems) and is also used for gunpowder; in the SI it corresponds to a little bit more than 31gr.
The tokens are ERC-20 and are minted and destroyed according to the gold reserves (London Good Delivery) in Brink’s vault.
I’ll repeat myself because I probably wasn’t clear: anyone who buys a $PAXG token is in fact buying a 1 troy ounce mass bar, and can safely have it delivered to their home (with some awareness)!
Of course, if we ask for conversion, the token will be destroyed to maintain the supply determined and backed by real owned gold.
Let us look at some features of this project in a comparison scheme with direct competitors:
Source: Paxos Gold
As is evident PAX GOLD offers respectable options.
First of all, there are no deposits for the safekeeping of the purchased gold, in fact it never leaves the vault until I request it; which moreover is immediate! There is no waiting required, no bureaucratic procedure whatsoever.
The minimum ceiling is $20: this opens up the possibility of purchasing safe haven assets to a multitude of people.
In view of a basket accumulation and diversification plan, $20 is an affordable amount for anyone: just smoke 4 fewer packs of cigarettes a month!
All gold stored in the vault is allocated, meaning that each bar has a serial number indicating its provenance and purity.
Likewise, the token or fraction of a token we purchase carries the bar details from where it was “taken.”
Again to have as much clarity and order as possible, the smart contract that manages the process stores all the wallets and tries (as far as possible) to attribute to the same wallet the same bar of the first purchase.
For the fullest possible transparency, on the paxos website, (www.paxos.com) one can obtain information about the token purchased. It is sufficient to enter the address of one’s wallet to obtain the relevant information: date of purchase, quantity, reference ingot and purity of the ingot (which as we said cannot be less than 995).
In this application, the inherent characteristics of cryptos emerge, such as in particular the absence of borders: my gold token I can carry it (virtually) always with me, it is stored in my wallet!
Thanks to these special features of cryptocurrencies, one can trade in any corner of the world. All it takes is an internet connection!
Not only that, tokens can be liquidated by receiving fiat currency in exchange.
In short, thanks to this Token-Gold union, PAXGOLD has broken all the limitations one needs to face in order to protect one’s savings with gold.
In this situation, the real utility of blockchain and cryptocurrencies for the simplification and tracked management of a precious asset like gold emerges!
Source: Paxos Gold
In addition to having ascertained the identity of the purchaser, each minted token has as its extremes the identifiers of the gold bar stored in the vault; thus, it is all traceable as well as’ transparent as it is recorded on Ethereum blockchain.
The tokens, as I wrote just above, are in fact ERC-20s.
Through this pseudo-tokenization, Paxos has created liquidity to a safe haven asset that it might not otherwise have had.
In addition to this shelter from inflation, some platforms offer the possibility of trading between shelter assets, in this case itBit.
Another well-known trading platform-Binance-allows DeFi to be used to increase the chances of profit.
Through one trading pair (PAXG/USDT) an additional return on an annual basis of just over 1 percentage point can be achieved.
A little? A lot? You can decide for yourself considering that both tokens have limited volatility.
Obviously, the versatility of the project is all about the possibility of holding gold in the form of tokens, should the user actually want to trade the tokens for pure gold, all the necessary steps must be followed to the letter in order to remain in total legality.
I place a lot of faith in this project, how about you?
Let me know in the comments!!!
