Digital Gold allows you to invest in pure gold in digital mode. The seller stores an equivalent quantity of physical gold in secured vaults. After making the payment, the buyer gets an invoice and the said quantity reflects under vault balance in your account with the service provider.
“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Warren Buffet, the 91-year old Founder and CEO of Berkshire Hathaway, one of the biggest and most successful investment companies with a portfolio size of roughly $300 Billion, has been a long-time advocate of not investing in gold.
While his investing track record is second to none, one simply has to look at the data over the years to understand the importance of gold in human society, and why Buffet is wrong to discard its relevance as a hedge against inflation.
While the chemical element of gold is as old as the universe itself, like no other commodity, gold has held the fascination of human societies since the beginning of recorded time.
Empires and kingdoms were built and destroyed over gold. As societies developed, gold was universally accepted as a satisfactory form of payment. In short, history has given gold a power surpassing that of any other commodity on the planet, and that power has never really disappeared.
The U.S. monetary system was based on a gold standard until the 1970s.1 Proponent of this standard argues that such a monetary system effectively controls the expansion of credit and enforces discipline on lending standards since the amount of credit created is linked to a physical supply of gold. It’s hard to argue with that line of thinking after nearly three decades of a credit explosion in the U.S. led to the financial meltdown in the fall of 2008.
In the Indian context, this is how gold compares to Indian Equities and Bonds over a multi-year cycle.
So while it is clear that Gold has proven to be a safe hedge against inflation and a solid asset class over the years, what are the disadvantages of holding physical gold?
The primary drawback remains the fact that storage of gold remains a cost-intensive and unsafe approach, with the possibilities of theft and loss discouraging investors from using home lockers, and trusting a third party like a bank to secure their physical gold.
Not just this, but the inability to invest dynamically across multiple ticket sizes, as possible with other asset classes such as Bonds and Equities is another reason that meaningful investment strategies such as a SIP (a common practice in the stock market)
However, over the past few years the rise of another form of investing in Gold, known as ‘Digital Gold’, has seen an uptick in adoption of the asset class, especially in the millennial age brackets.
How does Digital Gold work?
This instrument allows you to invest in pure gold in digital mode. The seller stores an equivalent quantity of physical gold in secured vaults. After making the payment, the buyer gets an invoice and the said quantity reflects under vault balance in your account with the service provider.
Customers can sell this gold at any time at live market rates, in either rupees or grams. They can also take possession of the gold in physical forms such as coins or ornaments, adjusted for any making charges and packaging costs.
Apart from the fact that customers no longer have to think about the hassles of storing physical gold, or worry about the quality of the gold they possess, Digital Gold is to Physical Gold, what trading equities in a De-Mat format were to trading equities based off physical share certificates.
In the Indian Capital markets scenario, SEBI introduced this move from physical to digital for stocks in the late 90s, and ever since then, the retail market participation has exponentially increased, helping individuals benefit from investing in India Inc.
Similarly, a shift from physical to digital for gold is leading to a democratization of the ability to invest in Gold, with the minimum ticket size being as low as Rs.1
Keeping these recent developments in mind, we at mBnk have decided to partner with MMTC-PAMP, an internationally recognized industry leader for bringing global standards of excellence to the Indian precious metals industry.
A joint venture between Switzerland-based bullion brand, PAMP SA, and MMTC Ltd, a Government of India Undertaking, MMTC-PAMP seamlessly marries Swiss excellence with Indian insights.
At mBnk, we have built a Phygital Financial Marketplace for the underserved and underbanked section of Indian society, with our retailer assisted model helping bring financial services such as Direct Money Transfers, Micro-ATM withdrawals, Aadhar enabled payments, Bill Payments, and many other such services to the bottom pyramid of India.
With this partnership, mBnk and MMTC-PAMP are hopeful of ushering in a new era of investing for the bottom pyramid of India, which have never been enabled access to asset classes such as Gold, in the digital form that is being offered.