In an ever-evolving landscape of investment opportunities, digital gold has seen rapidly growing market acceptance by both seasoned investors and newcomers around the world. Digital gold now represents an influential category of digital assets that promise to redefine how we think about investment.

Digital gold combines the convenience of digital assets with the security offered by physical gold. Digital gold operates on blockchain technology, a decentralised and secure ledger that ensures transparency and immutability of transactions. Compared to physical bullion, digital gold offers several benefits for gold ownership: digital gold is easily accessible, has improved liquidity, and lower storage and insurance costs. DuBois currently offers two digital gold products, KBAR and DAU which represent ownership and co-ownership respectively of gold kilobars. Holders can collect their physical gold at any time or convert to fiat or other digital assets. The advantages make digital gold an alternative investment choice for individuals looking to diversify their portfolios. In this article, we will explore the rise of digital gold, its implications for the investment world and how it might reshape financial strategies in the future.

The rise of digital gold can be attributed to several factors that make it an attractive alternative or complement to traditional gold.

1. Accessibility and flexibility

While many investors have recognised the advantages of physical commodities such as gold, as a hedge to a financial portfolio of stocks and bonds, there are major drawbacks to such assets. One substantial drawback is the cost and inconvenience of transactions. Physical gold requires large upfront investments to purchase – for example, a 1kg kilobar of Swiss gold would cost over $80,000 to purchase and may involve the use of a gold dealer or broker. Additional costs may also apply as it may be necessary to assay the bullion to verify its purity and pay transportation and insurance costs. Together, these costs can easily amount to several percent of the value of the bullion being transacted.

By contrast, digital gold products such as DuBois’ DAU offer fractional ownership of gold bullion at no additional costs, allowing individual investors to scale up their gold exposure gradually based on their budget. Holders of the gold can also request to take delivery of their bullion at any time, provided they own at least one whole kilobar of gold. Transactions can be executed 24/7 and can be easily accessed through digital wallets, making digital gold a more convenient option for investors.

2. Price transparency and liquidity

Typically, it can be difficult for holders of physical gold to get timely information on the exact value of their bullion. Due to local supply and demand changes, prices on local bullion markets in India or China can differ substantially from reference prices in London, often by as much as several percent. Additionally, different types of bullion will sell for differing amounts, dependent on purity, provenance and quality. By standardising the asset and making it location independent, digital gold resolves these problems. At DuBois, the DAU Vault mobile app gives you real-time information and analytics on your digital gold positions, allowing you to track and understand your exposure at all times. This also ensures our clients can always transact at the quoted price.

3. Reduced storage costs

In addition to the significant transaction costs mentioned above, other major costs for bullion holders are storage and security. Storage fees for moderate quantities of gold in armoured vaults can be considerable. Self-storage can be an option for small quantities, but few individuals will be able to provide the level of security needed for absolute peace of mind, so this requires taking some risk. There will also be fixed handling fees when adding to or removing gold from storage, which can again be significant for small amounts of bullion.

By contrast, DuBois simply charges a single, low, flat-rate fee built into the value of the digital gold transacted. The bullion is stored in secure armoured vaults in Switzerland and is fully insured. As any transactions are digital, there are no transportation fees because the gold does not leave the vault.

4. Confidence and peace of mind

Although bullion prices are readily quoted in across television and the internet, gold is a complex and multi-tiered market, where prices can vary substantially. Bars must be assayed – tested for purity and fineness, before being traded. Gold is quite a soft metal, and bars with markings – such as dents and scratches, may trade at a discount to published prices. Bullion with an uncertain provenance would also typically trade at a discount, as it could potentially be associated with ‘conflict gold’ – bullion mined in war-torn areas or where abusive labour practices were used. Most uncertain of all are gold coins and collectibles, which, depending on their perceived rarity or artistic merit, can sell at either a discount or premium to the quoted spot price. Quite often, these perceptions of merit or relative scarcity can change over time.

DuBois eliminates these sources of uncertainty for our clients by buying 9999 fineness Swiss gold, the highest standard of gold bullion available in the market from renowned Swiss refiners (Argor-Heraeus SA, Degussa Goldhandel AG, MKS PAMP and Valcambi. This gives our clients confidence regarding the value of their gold, and the assurance that it will be traded at the quoted price. DuBois also does not loan, take positions on or encumber clients’ gold holdings, differing from financial products that profit from rehypothecation of collateral, meaning that the gold is always available to collect.

5. Portfolio diversification

Finally, digital gold offers all the economic benefits of physical bullion to your portfolio. These include a role as a hedge against inflation. Gold prices usually rise after inflation shocks and during national political instability, as these are negative for fiat currencies. Gold also has no correlation to the stock market and will frequently increase in value during a stock market crash. For example, gold prices rose by about 5% during 2008, through the depths of the financial crisis and recession. The reason for this behaviour is that gold trades heavily on sentiment and is sometimes seen as a gauge of investor fear. After falling briefly in early 2020, gold prices also rose sharply during the next six months, as concerns over the effect of the COVID-19 pandemic led to a search for ‘haven’ assets.

Conclusion

The rise of digital gold represents a significant shift in the investment landscape, offering a modern alternative to traditional assets. Whilst maintaining all the benefits of physical bullion, the liquidity, convenience, and reduced cost means that digitised gold has the potential to become the prevailing method of gold investment globally in the coming years. However, it is essential to approach this new investment avenue with a clear understanding of the risks involved and invest with an established company. Investors looking to understand how digital gold can diversify their portfolio are welcome to talk to us at DuBois. We have decades of experience in innovative finance and are a market leader in digital gold products, offering cutting-edge security, seamless customer service and customised solutions.