Gold market should evolve from latest crisis - Tradewind Markets CEO
However, according to one gold-industry CEO, the issues that have plagued the precious-metals market could have been avoided if investors embraced a transparent and digital exchange.
In the last few weeks, market analysts have said that there is plenty of gold to meet current demand but they have also noted the market has seen a collapse of its supply chain. The gold market has been no exception as a global economy that has ground to a halt as people are forced to stay at home to slow the spread of the COVID-19 pandemic.
In a recent interview with Kitco News, Michael Albanese, CEO of Tradewind Markets, said that a digital gold exchange could help resolve some of the issues currently impacting precious metals. He explained that in a completely digital exchange, investors can see exactly how much gold is available in the marketplace and where it’s available.
Albanese said that the latest financial crisis has revealed just how fragmented the gold market is, which is showing up in the price.
“When we talk about the gold price, what price are we talking about – the price for spot gold, future contracts, gold coins?” he asked. “There is no universal gold price because there is no universal exchange.”
Albanese said that Tradewind’s VaultChain, a digital exchange for physical metal, could solve a lot of issues currently impacting the market because investors are able to see exactly where and how much gold is available and at what price. VaultChain Gold is able to bring together investors, precious-metals dealers, major producers and mints, he said. The physical gold is tracked using blockchain technology.
“I have been very unimpressed with the way that metals markets operated,” he said. “But I think the market's got a huge opportunity here to redefine the way it works. I don't just mean it from a pricing standpoint, but I mean it from reassessing how the entire gold market operates -- whether it's price discovery of physical metal, whether it's the trading of various types of metal, whether it's pool, whether it's bars, whether it's coins, whether it's using gold as collateral.”
As an example, Albanese noted that in March, as equities tanked, investors were forced to liquidate profitable gold positions to meet margin requirements. After a few weeks of selling those, investors are now forced to buy back all the gold they sold.
Albanese said that a better option, but not available for example to ETF investors, would have been to use their gold as collateral to cover their margin calls. This would have allowed investors to tap into the value of their gold without having to sell their holdings.
A digital exchange would also show investors exactly how much gold is available, where it is coming from and what form it is in.
“In the last weeks, people literally weren’t sure where the metal was,” he said. “If you could put supply and demand together in a smarter way, could you have reduced some of these frictions where these bid/offers were so wide that you actually didn't get a trade?”
Although the latest financial crisis has revealed some cracks in the gold market, Albanese said that he is confident that the market can evolve. He added that he has seen positive growth in Vaultchain as a result of the panic in the financial system.
Albanese added that he is also not concerned that spreads and liquidity issues plaguing the market will turn off investors. He said that gold demand should remain strong through 2020.
He added that he expects investors to continue to look at gold as interest rates remain at extremely low levels.
“I've got to say this is a classic opportunity for gold,” he said.