How the Gold Trade is Changing

Among the world’s investing markets, it’s fair to say that the gold trade is one of the oldest and most well established. As such, it can seem particularly stable and unchanging — which, incidentally, are some of the reasons so many people like the idea of investing in gold in the first place. To some extent, these perspectives on the gold trade are perfectly reasonable. However, in a time of rapid technological change relating to financial systems, as well as adjustments brought about by a global pandemic, the gold trade is beginning to evolve.

Below are some of the changes we’re beginning to see and hear about.

Delivery & Supply Are Adapting

The pandemic conditions in which we find ourselves in 2020 have led to all kinds of disruptions relevant to the commodity trade. Mining and other sourcing operations have been interrupted; financial institutions have struggled to operate, and shipping and transfer practices have stalled and in some cases been entirely halted. In time, the severity of these issues should subside, and commodity trading should go back to operating as usual. For now, though, the disruption appears to be leading to some changes in how supply and delivery are approached.

What we’re seeing specifically is talk of changing gold delivery rules between nations and institutions.

This past spring, coronavirus lockdowns led to difficulty in transportation. Gold bullion could not reliably be shipped between Europe and the United States to settle traders’ contracts, and this led to greater-than-usual discrepancies in futures prices at different listing. As a result, we may be on our way, at least temporarily, to a more universal system of trade backing (such that, for example, a trade in the U.S. could be made on the basis of the value of bullion stored in London).

“Safe Haven” Status is Renewed

Historically, traders have often sought out gold investment as a strategic way of guarding their wealth against currency devaluation and market turmoil. In recent years though, some were beginning to doubt whether gold was still valuable for these purposes. The idea that gold is no longer a safe haven has been floated a few times of late — in 2019 when the precious metal showed some unusual signs of vulnerability, and again this past February, when gold succumbed to the same pandemic-fueled market collapse most major stock exchanges suffered.

If anything though, the pandemic has since proven to be a catalyst for renewed enthusiasm for the safe haven concept. For investors looking to trade commodities over the course of the summer, they have seen that the price of gold has been on an upward tick, and is — at the time of this writing — near an all-time high. This positive trend is being attributed to the financial upheaval throughout the world, and it appears that investors have once again turned to gold as a “safe” alternative to other assets.

Blockchain is in Play

Blockchain technology is the root of cryptocurrency and remains primarily associated with cryptocurrency transactions. But for a few years now the tech has been branching out, so to speak, and we now understand that versions of it can be used to facilitate secure transfers of a variety of stores of wealth. It’s believed that before long, the technology will become particularly helpful in the trade of precious commodities, such as gold and even diamonds.

For the average investor, this might not appear to make much fo a difference. The idea though would be to make the gold trade more transparent, such that each ounce of bullion (and potentially each piece of jewelry) is easily tracked from one transaction to the next. To give an example of how this could help, we’ll refer back to a 2019 story about four men smuggling gold into the New Delhi airport. Issues like these can give rise to a sort of underground gold trade that can skew pricing, and they’ll likely become far less frequent if gold is gradually moved onto a blockchain trading system.

The fundamentals of the gold trade ultimately remain similar to how they’ve always been. Given these factors regarding protocol, perception, and technological involvement though, there could be some changes on the way.