When Old Meets New: The Digitalization of the Gold Industry – Swiss Made
The following article is a loose translation to English of an article which originally appeared last month, in German, at Nebelspalter (see here). We wanted to share this with you because many of the elements contained, such as growing debt, the search for safe havens, technological innovation in Switzerland, and our own AltAlpha Integrity Gold Fund, are all current, global concerns and considerations that we are not just hearing about in Switzerland, but also from many others around the world.
Switzerland is both the "Hidden Champion" of physical gold trading and officially the most innovative country in the world. Therefore, it shouldn’t come as a surprise that a Swiss company is now combining these aspects: AltAlpha Strategies, with their Integrity Gold Fund, offers an investment option merging the traditional gold industry with Distributed Ledger Technology by aXedras to meet modern transparency and standardization needs.
Our present-day "paper money" can be traced back to its origins as basically receipts for the storage of gold, silver, and other valuables with “banks”. It is said that the Scottish economist, John Law, laid the foundation for today's "Fractional Reserve" banking system in the 18th century with his Banque Royale, which was one of the first banks to issue partially gold-backed paper notes.
Nearly 300 years later, this system still dominates the banking sector, and as recent events have shown, it can have fatal consequences. In 1973, relatively late in history, Switzerland also abandoned the gold standard, meaning it no longer required a fixed proportion of its currency to be backed by gold.
Bits and Bytes
Today, we find ourselves with only "paper money" (also known as fiat), which is essentially a government debt note. However, this is no longer entirely accurate, as nowadays most money exists in the form of “bits and bytes” rather than physical paper. For example, the Bank of England reports that only 4% of the Great British Pound is held physically, while 96% exists as electronic money. Some government representatives are even advocating for the complete dissolvement of paper money in favor of transitioning entirely to a digital currency system.
This trend of unbacked currencies is typically questioned during times of uncertain or inflationary periods, with the demand for "real assets" increasing. This is where gold is still considered a "safe haven", in part because central banks cannot print gold, while they can print as much of their currency as they want.
Today, we are experiencing uncertain times with a world drowning in debt, and governments reluctant to tighten their spending belts as voters are rarely enthusiastic about austerity measures or the reduction of social benefits.
The banking crisis, which affected the United States and, as we know, also Switzerland, served as another wake-up call regarding the safety of one's bank-held assets. Under the banner of "de-globalization" or "de-dollarization," central banks of countries such as Singapore, Turkey, China, or India have increased their gold purchases in Q1 2023 to strengthen their respective currencies, particularly in light of increasing geopolitical tensions.
Switzerland benefits from such a boost of demand in the physical gold market, as gold trading plays a significant role in the country. Switzerland could be called a "Hidden Champion" in this regard: it is the world's largest gold importer and home to some of the world's largest refineries, where roughly 70 percent of the gold produced worldwide is melted and processed. The processed gold is also exported abroad, making it the second-largest export commodity.
Digital Standard for Gold
However, Switzerland is not only known as a major player in the gold market. It’s also known for innovation: it has been crowned the world number one by the Global Innovation Index for 12 consecutive years. Considering the reputation of our universities, such as ETH, and the establishment of the "Crypto Valley" in Zug, this should come as no surprise.
A symbiosis of the precious metal trade with Switzerland's innovation power can be found at aXedras, which digitalizes the supply chain of gold using decentralized technology. This has also caught the attention of the World Gold Council based in London. They have acquired a minority stake in the Swiss company and their CEO, David Tait, sits on the board.
In a recent interview (a BFI’s Fireside Conversation) between BFI Capital Group CEO, Frank R. Suess, and David Tait, they extensively discussed how creating a digital standard for gold can not only reduce entry barriers to investing in gold, but also bring more confidence, efficiency, and standardization to controversial small-scale mines.
The World Gold Council clearly advocates for a decentralized, free-market approach rather than a centralist, top-down solution that would involve much bureaucracy. David Tait's clear goal is to increase the attractiveness of the overall market and enlarge the “total pie accessible to everyone”. From an investor's perspective, he sees it as sensible and beneficial to hold a variable portion (between 3% and 8%) of one’s portfolio in gold.
New Fund: Investors Benefit from Transparency
To implement the above-mentioned aspirations in a real-use case, AltAlpha Strategies’ Integrity Gold Fund (the “Fund”) is the first physical gold fund deploying aXedras’ Bullion Integrity Ledger technology. This provides qualified investors with a new level of transparency regarding the quality and origin of each bar held within the Fund. All information about each individual bar is easily accessible online – a fusion of the physical and digital worlds to enhance product integrity.
The Fund only purchases physical gold bars freshly produced by Valcambi in Ticino. It is a new product line based on Valcambi’s "Recycled Gold" brand. The gold used for production is sourced from recognized sources and fabricated into 100g, 500g, and 1kg bars. The Fund also allows for physical redemption in addition to the usual cash settlement.
The gold is kept by the globally recognized logistics company Loomis International in Switzerland, fully insured, and subject to annual auditing by Ernst & Young. All these services are included in a low, all-in management fee.
The Fund is a solution by the Swiss company, BFI Capital Group AG, which celebrated its 30th anniversary on May 21st this year. As a group, the company manages assets of USD 1 billion with 20 personnel in asset management and 30 personnel in the technology sector.