I launched this business with a simple thesis. Interest will draw gold into the market; without interest, gold disappears into private hoards. The obvious reason is that people want a return. Without a return, they put their gold away and seek to avoid risk. A return provides an incentive to bring out the gold. Everyone wants to make a profit.
There is a less obvious reason, but it’s important.
So long as gold has no yield, then Warren Buffet (and many others) can dismiss it as a barbarous relic, a useless lump of metal that is not productive. Owning gold is reduced to a mere speculation, a bet on the price action (perhaps a smart speculation). Most people in the West can’t get their arms around holding a lump of metal waiting/hoping for its dollar value to rise. Even when people know that the dollar is designed to go down, even when they know that the Federal Reserve’s stated policy is to make the dollar go down, they see gold as a pet rock, not as the solution to inflation.
Especially institutional investors.
Gold and the Banking System
The banking system has a similar but slightly different problem with gold. The business model of banking is to generate a return on assets. Banks generate X on assets, while paying Y to their investors. The bank’s profit is X – Y.
Metal locked up in a vault does not really fit the model. Even banks that offer this service (e.g. Zurich Kantonalbank) are just charging a service fee– peripheral to their main business. And banks are not more efficient at operating a secure warehouse than a logistics company (e.g. Brinks).
Gold and the banking system have been moving apart for a long time.
Problems with Retail Gold Products
However, there is a problem with holding retail gold products at home, such as the Vienna Philharmonic gold coin. You generally cannot insure it. To sell it, you can hand carry it to a coin dealer. During business hours. They will pay you several percentage points less than you paid them. Or you can mail it and get paid in a few days.
If you have a short-term cash need, you cannot borrow currency against gold coins held at home. You must sell them, which may subject you to VAT and/or capital gains taxes. Plus, the bid-offer spread is wide in retail coins. And if the price moves up in the meantime, then you end up with less gold than before.
In this light, you can appreciate the utility provided by the banking system.
Banking system assets are so much more user-friendly. They are better in every regard. Well, except one regard–fiat currency.
The Evolution of Gold Yield
And so Monetary Metals created the concept of yield on gold in the modern world. It’s a game-changer for gold, returning to gold much of the utility that it once had. Not to mention the ability to grow one’s savings by compounded interest on their gold. However, so far it has been outside the banking system.
And now the next step has been taken: Monetary Metals announced that Gefion Capital AG in Zurich is issuing a gold-denominated Note. This is the next step in the evolution of yield on gold—investors can access these Notes via the banking system using well established infrastructure; Swiss ISIN, Bloomberg Terminal, and over-the counter. The Note is backed by Monetary Metals gold leases and gold bonds.
Why am I writing this? It’s not to pat myself on the back, or to say, “Hey this is cool!” There’s something much more important.
If gold is to come to market at scale, if this is to be a movement that changes the world, then there has to be a gold yield product for every customer niche. And the banking system is hardly a niche, it is the dominant channel for all kinds of financial products.
So now, the first of its kind in Europe (watch for other jurisdictions), there is a gold yield product in the banking system channel. And a new kind of customer.
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