Forget Bars And Coins; Digital Gold Will Revolutionize Marketplace - Sprott CEO
(Kitco News) - Although gold is one of the top traded assets in the world when compared to other markets like U.S. bonds or foreign exchange, it is hugely inefficient, but one fund manager thinks this is going to change.
Peter Grosskopf, CEO of Sprott
More than a decade ago exchange-traded products revolutionized the gold market, and the yellow metal is on the cusp of a new digital revolution, said Peter Grosskopf, CEO of Sprott, in an interview with Kitco News on the sidelines of Mines and Money Toronto.
Grosskopf said that he thinks a digital bullion marketplace will open up the gold market to a new category of investors and bring much-needed efficiencies for the market.
“Going to a bank or a broker to buy gold is not a great option. Because of the fees, it’s a losing trade,” he said. “Yes, buying ETFs are better, but the storage costs are still prohibitive for long-term investors.”
Grosskopf said that what the gold market needs to be relevant to today’s modern investors is a digital market, which is why the company has taken a stake in Vaultchain Gold, a physically-backed digital marketplace, developed by Tradewind Markets.
Through Vaultchain, which launched in March, investors can buy fractional amounts of gold or silver on digital exchange with the physical gold stored in a vault at the Royal Canadian Mint. The transactions and ownership of the gold are recorded through blockchain technology.
He added that a digital marketplace is the next evolution of the gold market, which hasn’t seen any significant changes since the first gold-backed ETFs were launched.
“Without exaggeration, I think a digital exchange is important for the gold market,” he said. “The gold market is ready for a whole new investor. We just have to bring the physical market into a digital world.”
Although gold has struggled to find momentum even as it holds on to most of its recent gains, Grosskopf said that he is expecting gold to regain its luster through the rest of the year as investors start to see cracks growing in the U.S. economy.
He added that he expects increased economic risk and higher volatility will prompt some investors to move out of equities and invest in more defensive assets.
“It just takes a small percentage of investors to take their money off the table and put it into gold to spark a major rally,” he said. “I think people are starting to recognize that gold is a resilient asset.”
Grosskopf noted that gold prices, while falling to a 1.5 year low in August, have held critical long-term support levels despite facing significant pressures from strong momentum in the U.S. dollar and higher bond yields.
One of the reasons why gold has remained resilient is because of growing inflation fears. Although inflation has been tame this year, he said that there are already signs that pressure is starting to build.
“Economic growth has comforted many investors, but we don’t think it can last,” he said. “Government tax cuts have juiced this economy and when the impact of those tax cuts runs out, the growth numbers aren’t going to be great. When do people stop buying the growth story and start worrying about the deficit? We think that happens sooner rather than later.”