Gold is the most trusted form of money globally. Up until the 1970’s most paper currencies were backed in some shape or form by the barbaric relic. Due to the monetary folly of negative interest rates, western global savers are rediscovering the money-good properties of the shiny metal.
In Germany, retail banks recently began charging their depositors to hold their money. This prompted a flight to cash under the mattress. German savers began buying safes in record numbers. Various gold exchange traded products became even more popular.
Xetra-Gold is one of the most popular Exchange Traded Commodities (ETC). The key selling point is that clients can request delivery of the physical gold that their paper derivative represents at any time. Due to the financial chicanery over the past 7 years, investors rightfully do not fully believe they own gold unless they can physically touch it.
Recently GodModeTrader published a troubling report about a Xetra-Gold investor whose request for delivery was denied. Xetra-Gold is not some fly-by-night operation. The fund has over 1.5 billion Euros of assets, and is sponsored by Deutsche Bank.
After this report gained traction, Deutsche Borse and Deutsche Bank released a statement. The statement contained no substance, and did not answer the crucial question of why the client could not receive delivery of his physical gold.
Due to social and governmental conditioning, most people place immense trust in the banking system. Events such as these are rarely reported by mainstream news outlets such as The Financial Times, The Wall Street Journal, or Bloomberg, underlying this level of misplaced trust.
But if exchange traded products with billions of Euros under management cannot make good on their fiduciary responsibilities, why is there not a bank run on these organisations? Why doesn’t every holder of Xetra-Gold paper request delivery immediately and determine if the gold actually exists where it should?
Although gold has been the best store of wealth over many millennia, certain properties of the metal lead to third parties holding it on our behalf. Gold is heavy and voluminous; transporting, storing and insuring a large amount of gold is expensive. Gold can be counterfeited; there are many instances where gold bars and coins have been found to include various amounts of tungsten or other cheaper metals. And, like Bitcoin, gold can be stolen.
Retail savers want a scarce, non-governmentally controlled asset that can be bought or sold easily, and they can fully control at all times. The Xetra-Gold example illustrates the pitfalls of entrusting saving wealth to paper derivatives.
Bitcoin is scarce and not backed or controlled by any government. The authenticity of any user’s Bitcoin holding can be independently verified by anyone. Bitcoin can be bought or sold in tiny quantities 24/7, with spreads tighter than the physical gold market. Most importantly, Bitcoin can be stored for zero cost on free-to-download apps on any smartphone.
Bitcoin is volatile, but so is gold. In the spring of 2013, gold dropped 30% in a few hours. It is not uncommon to see 5% pumps or dumps in the gold markets in 5 minute candles. The volatility of Bitcoin is not an excuse to disregard it as a means of wealth preservation.
Retail savers escaping the insanity of negative interest rates should consider investing in Bitcoin over gold. At least with Bitcoin, you are in full control of your wealth at all times.