A new gold standard: BitGold offers a fresh way to buy and sell the yellow metal

March 8, 2016

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The last decade has been a tough time to be a saver, but the new phenomenon of negative interest rates combined with the recent resurgence in the price of gold is causing savers to look again to gold as a savings vehicle capable of preserving purchasing power.

All of which makes the timing of the recent launch of BitGold, a new digital saving and payment service, look prescient. First, be aware that BitGold is not the same as the better known digital currency called Bitcoin. However at a briefing Tuesday morning, coincident with the annual Prospectors and Developers Association of Canada conference, BitGold executives credited Bitcoin for raising awareness about network-based alternatives to the central banking system.

The rise of so-called “fintech” (financial technology) has also made it possible for BitGold to quickly build a network effect. It’s provided by GoldMoney Inc., a global precious metals custodian based in Toronto (trading as XAU on the TSX Venture Exchange). The company has raised $70 million and hopes to be listed on the TSX soon.

Until the early 1970s, paper money was backed by physical gold; then, when Richard Nixon took the U.S. dollar off the gold standard, most nations moved to “fiat” currencies backed by nothing more than government promises. Now a third phase of digital currency ledgers is creating a comeback for gold, albeit outside the central banking system.

Personally, I’ve always been a believer in maintaining roughly a 10 per cent overall allocation to gold or precious metals. Until now, this was achieved either with gold mutual funds or ETFs, or by holding coins or bullion directly.

Gold often zigs when other markets (such as U.S. stocks) zag, so it can provide a measure of diversification and, therefore, safety. During the 2007-2008 financial crisis, for example, gold, cash and bonds were about the only asset classes that rose when most other assets fell. While gold has had a rough go of it the last two years, so far in 2016 it’s been strong, even relative to the Canadian dollar. 

With BitGold, customers’ are credited with real physical gold, stored at any of seven Brink’s locations in major global financial centres. Customers can also choose to take physical delivery.

BitGold’s global gold network is almost three quarters of the way to a million users (739,252 at last count) in 150 countries. One million users has proven a critical threshold for a range of tech companies, including PayPal (which took two years to get there), Facebook (under a year) and Uber (18 months) — BitGold is within spitting distance of this milestone after just nine months.

Through this gold-based global network, you can purchase or sell gold at a one per cent transaction cost in each direction.

Early customers are mining companies, which allow employees to be paid wholly or in part in BitGold, or permit shareholders to receive dividends in BitGold.

One reason the firm chose to go public early was to assure customers of regulatory compliance. There is no counterparty risk because — unlike ETFs that are essentially paper promises to deliver real gold — BitGold customers have direct ownership of the underlying metal. It’s “fully reserved, allocated and redeemable under Bailment law,” the company’s materials state. Customers don’t pay for the storage at Brink’s — it’s covered by BitGold — and the holdings are fully insured.  BitGold can be transacted in more than 100 currencies around the world.

This happens in just three steps: first, you purchase the gold from the funding source of choice for a fee of one per cent of gold’s spot price; then you select the currency in any amount; and finally you choose the Brink’s vault location. You can later sell your gold back in your bank’s currency, also for a fee of one per cent of the spot price. If your intent is to build long-term savings, you can do so with recurring bank transfers daily, weekly or monthly.

BitGold also provides a gold-backed prepaid GoldMoney MasterCard (free when you open an account), which can be used for everyday spending anywhere in the world. It’s also launching a Global Business Payments business.

Financial Post

Jonathan Chevreau is the founder of the Financial Independence Hub and can be reached at jonathan@findependencehub.com

Category: General