Don't trust the gold market? Nearly half of potential new investors lack trust but there's a solution
(Kitco News) Lack of trust in the gold space still represents a major barrier for growth, especially when it comes to attracting new investors, according to one fintech CEO.
Gold has experienced "a double perfect storm" this year as the COVID-19 pandemic exacerbated gold's existing drivers, Goldex CEO Sylvia Carrasco told Kitco News on Tuesday.
"When you look at the graph of gold prices, it is clear that the increase in gold started at the end of 2018. The perfect storm was just beginning then. In 2019, we saw U.S. President Donald Trump's trade deal issues, Brexit, U.S. dollar weakness, and debt getting out of control. And then COVID-19 hit in February. Talk about the double-perfect storm," Carrasco said. "People forget about 2019 — the economy was sick, COVID just made it double-sick. And gold is the ultimate refuge for assets."
Many new investors turned to gold during the pandemic, with prices rising from $1,500 at the beginning of the year to a new record high of $2,075 an ounce in August. The primary driver behind that rise was investor demand coming from the West. Since then, prices have come off about $100. At the time of writing, December Comex gold futures were trading at $1,908.30.
The rush to gold was seen not only in the financial space but in the mainstream media as well as global headlines embraced gold as the every-day topic of conversation. Even Costco began to sell the bullion in order to try to capitalize on the trend.
However, despite so much attention dedicated to gold this year, the World Gold Council (WGC) found that 48% of potential buyers don't trust the gold industry. This lack of trust is a significant impediment when it comes to expanding the customer base within the gold space, noted Carrasco.
"Which gold do I buy? How do I know that gold belongs to me? How do I know I am paying the right price? As an industry, we need to address that," said Carrasco.
As a solution, the WGC introduced the Retail Gold Investment Principles (RGIP) – fairness and integrity, transparency, protection of client assets, responsible gold sourcing, regulatory compliance, commercial prudence, operational professionalism.
WGC CEO David Tait said this about the seven principles: "Through this industry engagement, it was clear to us that the market would benefit from a globally aligned set of best practices in order to ensure an effective, efficient and trusted market overall."
Carrasco, who comes from a background of regulated asset classes, built Goldex with these principles in mind, which is why the Goldex app made the headlines as the first gold retail platform in the world to adopt this new initiative from the WGC.
"It is absolutely crucial in the market that there is an effort to generate trust for those retail people. At Goldex, we saw the opportunity to be the first ones. We created the company five years ago, and we set it up in a way where we wanted to precisely address these problems," she said. "There is no regulator behind gold really. We knew we had to behave like a regulated asset class. That would inflict trust.
The more trust there is, the more gold will be sold, added Carrasco.
Going forward, Carrasco sees gold remaining a very relevant investment as this coronavirus crisis might not have hit bottom yet. "We will hit bottom when there is a vaccine. Only then can we see how long it will take to recover," she said. "This winter is going to be very hard."
The pandemic showed that gold is always here at the time of need, which is why the CEO remains bullish on gold, estimating a 15% price advance by the year-end.
Some of the biggest risks to the economic recovery going forward are the massive amount of debt and money printing needed to keep everything going, Carrasco pointed out.
"There is a discrepancy between financial markets and the real economy. They keep passing new stimulus backed by government … It could take five, ten or even 20 years to fully recover from this," she warned. "At some point, the government's will have to let the markets run by themselves. But by that point, we'll be in a massive downwards spiral of debt."
And gold plays a pivotal role in all of this, according to the CEO. For example, take a look at Germany. It has never forgotten that it suffered tremendous currency devaluation.
"Germany remained the number one country in Europe when it comes to physical gold investment. This is the same now. People will not forget the appeal of gold and will keep it just in case there is another pandemic," Carrasco said.