Gold prices near historic highs, what are the investment channels for investing in gold?

The price of gold continues to hover at high levels, even approaching the historical high point of 2020. Previous reports have mentioned the recent gold rush and cited reasons speculated by the World Gold Council, including: China's cancellation of the zero-clearance policy driving consumer demand for precious metals, the value storage demand triggered by the banking crisis in the United States, and geopolitical risks.

With the U.S. banking crisis unresolved, the ongoing Russia-Ukraine war, and persistent geopolitical risks, there have been many voices advocating for gold and digital gold Bitcoin recently:

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So how should one hold gold? Let's take a look at how the traditional financial and blockchain worlds trade gold!

Physical Gold Trading

The global standard for investing in physical gold is the London Bullion Market, which is an over-the-counter (OTC) market used for trading gold and silver wholesale. Trading is conducted among members of the London Bullion Market Association (LBMA), an OTC market supervised by the Bank of England. Most members are major international gold and silver traders and refiners, and the public usually only has indirect access to this market through third parties. Gold-backed stablecoins issued by Paxos are also purchased through this market.

Of course, the general public can also buy and sell physical gold at gold shops.

Exchange-Traded Gold Products

Exchange-traded gold products include Exchange-Traded Funds (ETFs), Exchange-Traded Notes (ETNs), and Closed-End Funds (CEFs), all of which are traded on major stock exchanges like stocks. Gold ETFs have a significant share of the gold market as they allow investors to operate more efficiently with small amounts of capital. These products aim to track the physical price of gold itself or invest in companies specializing in gold business, providing investors with various indirect ways of holding gold and saving them the burden of storing and verifying physical gold.

Gold Hedging with Derivatives

Financial derivatives such as gold forward contracts, futures, and options are traded on public exchanges and over-the-counter exchanges worldwide. These derivative products were originally designed as hedging tools for buyers, such as producers and gold users, to adjust their economic exposure to physical gold.

Gold Stablecoins Based on Blockchain Technology

With blockchain technology, tokenized gold has become another channel for investing in gold, similar to stablecoins, where its price is pegged to gold. It provides investors with another way to invest in gold without paying ETF management fees or bearing the storage costs and risks of gold bars. The largest issuers of tokenized gold currently are stablecoin issuers Paxos and Tether.

PAXG Issued by Paxos

Using Paxos' PAXG as an example, each PAXG is backed by one troy ounce of gold, abbreviated as TOZ, which is approximately 31.1 grams of gold, stored in the London LBMA vault. The minimum trading unit is 0.01 TOZ, equivalent to about $20 at the current gold price of $2000, allowing investors to invest in PAXG with as little as $20. Both redemption and creation can be done in USD or gold, meaning investors can purely trade for profit in USD or store digitally and convert to physical gold when needed. Customers need to hold over 430 TOZ of PAXG to redeem for physical gold due to the fixed specifications of physical gold bars.

PAXG is an ERC-20 token based on Ethereum blockchain, with a trading fee of 0.02% plus Ethereum gas fee. According to its whitepaper, because Paxos is a nationally chartered trust company, customer assets issued by Paxos are kept separate from company assets and will not become part of the company's assets in case of bankruptcy. Paxos also commissions independent third-party accounting firm WithumSmith+Brown, PC to issue audit reports monthly.

According to Paxos' latest report in March, they have issued a total of 256,999.65 PAXG, with a current market value of approximately $510 million. PAXG is available for purchase on exchanges like Binance, Bybit, Pionex, and Matrixport.

XAU₮ Issued by Tether

XAU₮ issued by Tether is ERC-20 based, with each token backed by one troy ounce of gold. The current circulating supply is 246,524.33 XAU₮, with a market value of around $490 million. There are no custody fees or trading gas fees, with a one-time fee of 25 basis points only when purchasing or redeeming. If one wishes to exchange for physical gold, Tether can arrange for physical gold bars to be delivered to any address in Switzerland, with additional delivery costs. Similar to PAXG, physical delivery is restricted by the fixed specifications of physical gold, requiring over 430 TOZ of XAU₮ for redemption into physical gold bars.

XAU₮ is available for purchase on exchanges like Bitfinex, Bitget, OKX, and Huobi.

Gold Savings Accounts in Taiwan Banks

In response to the Taiwanese tradition of buying gold for value preservation and hedging, Taiwanese banks have long offered "gold passbooks" for investors to buy and sell small amounts of gold, as well as provide redemption for physical gold.

For example, Bank of Taiwan offers gold passbooks with the latest price set at NT$1,993 per gram of gold as the basic unit, providing services for scheduled purchases, gold transfers, and conversion into physical gold products.

Tokenized Gold Still a Small Percentage, Promising Future Development

Previously, a report from a US bank considered the tokenization of real-world assets such as commodities, currencies, and stocks as a "key driver of digital asset adoption." The report mentioned that as the pace of tokenizing real-world assets accelerates, the value of the tokenized gold market has exceeded $1 billion.

According to the latest statistics from the World Gold Council in 2022, global gold total inventory is 208,874 tons, with a current market value of $13.4 trillion. Gold bars, coins, and gold ETFs account for about 22% of the total, with a value of around $3 trillion. Tokenized gold only accounts for 0.033% of this total, indicating promising future development.

This article objectively provides channels for investing in gold and does not represent any investment advice. Please DYOR (Do Your Own Research).