Gold and silver have a trading history dating back centuries with both precious metals valued as a form of currency as well as investment assets recognised around the world.
However, while the physical form of both metals is still highly valued, the growth of digital gold and silver has significantly increased trading options for tech-savvy investors looking to gain exposure to this timeless asset class.
Merging Precious Metals with Modern Technology
One of gold and silver’s main appeal is the physical tangibility of the metals. A finite resource that can’t be manipulated by central banks and avoids counterparty risk with people able to hold the metal directly.
However, the physical nature of gold and silver also makes buying and selling holdings more cumbersome than other digital-based asset classes where transactions can be carried out in fractions of a second.
The fusion therefore of the robustness of gold and silver with the transactional ease offered by digitalising the asset class makes for a compelling offering.
Understanding Blockchain and its Significance
A key reason that these age-old asset classes in gold and silver have been able to benefit from this digital reboot, fresh for modern trading demands, has been the development of blockchain technology.
Blockchain, with its shared, immutable ledger, has been crucial for the development of cryptocurrencies, including Bitcoin and Ethereum.
This same technology has also enabled physical gold and silver holdings to be tracked from the vaults they are stored in through to individual transactions, sometimes of fractional denomination of a gold bar, which would have been impossible if the metal was solely in physical form.
The decentralised nature of blockchain also appeals directly to many of the typical gold and silver investors who are seeking an asset that is free from the shackles of central banks and other major financial institutions.
Digital Gold and Silver Tokens: The Basics
Gold and silver tokens, such as Kinesis’ gold KAU and silver KAG products, are backed on a one-to-one basis with the equivalent amount of the metal stored in approved vaults around the world. With this physical backing underpinning it, Kinesis has then developed KAU and KAG as currencies that can be used to carry out everyday transactions via the Kinesis Virtual Card.
This is where the fractional nature of digital gold and silver is crucial as while physical gold offers a good form of long-term financial protection, it is an all-or-nothing product when it comes to sell the gold bar an investor may have. You may have a 1-kilogram bar that is worth close to $2,000 but if you wanted to raise $200, you’d need to sell the whole bar to realise that underlying worth.
Digital gold and silver open up the two precious metals to return to their original roles as everyday currencies.
You can find out more about how the Kinesis blockchain works, in this article here.
Trading and Liquidity in the Digital Realm
Converting gold and silver into digital products has transformed the pace at which transactions can be carried out as well as the ease of trading them. While physical gold and silver are instantly recognised around the world, an individual still needs to take their holdings in person to a reputable dealer to trade them, creating a security risk as well as increased time and hassle.
Also, the dynamic nature of gold and silver markets could see the price drop while making the journey to the dealer, reducing the value of their assets.
None of those problems exist for digital gold and silver with the products now able to be traded at a click of a button, including via Kinesis’ platform, instantly locking in the price visible on the screen. Kinesis offers trades to be carried out in Euros, Pound Sterling, or the US, Aussie or Canadian Dollars.
Given the global size of the two markets, investors can access the institutional liquidity of the physical gold and silver markets with Kinesis, to make a trade whenever suits them best, be that from a time zone or price perspective.
Security Measures for Digital Precious Metals
Investors must choose wisely when selecting a place to invest in gold and silver digitally and deal with a trusted outlet, such as Kinesis.
Each KAU and KAG digital asset is fully allocated and backed by an equivalent weight in investment-grade metal held in fully insured vaults across the world, that undergo independent audit every quarter. Once an investor purchases Kinesis gold or silver, they become the full title owner of them and can elect to redeem the underlying physical metal at any time.
The blockchain technology underpinning the products eliminates any double-counting concerns with the bullion held to support KAU and KAG managed by Allocated Bullion Exchange, with over 10 years of experience in the sector.
Digital gold and silver have modernised the world of precious metals trading and now offer investors the best of both worlds. The assurance of physically-backed products with the ease of trading and low costs offered by online exchanges, add in the fact that KAU and KAG also allow users to earn a monthly yield based on their transactions and suddenly the two main drawbacks of gold ownership – the cumbersome nature of trading it and its lack of yield – have been removed.
Digital gold and silver have made these two precious metals fit for the demands of the modern investor and will ensure these age-old assets continue to have a central role for centuries to come.
Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
Read our Editorial Guidelines here.
