According to Mining News Pro -As technology continues to reshape the world as we know it, its
impact on the traditional physical gold market is hard to quantify, said
Australia’s ABC Bullion chief economist while listing four biggest
risks threatening the yellow metal in the near future.
“From where I sit, apart from the obvious challenge a bear market in
the metal would pose for gold sales, I see four main threats to the
growth of the industry in decade ahead,” said Jordan Eliseo.
The chief economist goes on to list cryptocurrencies, competition
from ‘gold like’ products, cost, and capital “controls” as some of the
main risks looming over the physical gold market.
Eliseo said his analysis was inspired by a question posed by the
Ritholtz Wealth Management portfolio manager Ben Carlson on whether or
not gold could die out with the boomer generation.
Earlier this month, Carlson asked: “Isn’t it possible faith in gold
could potentially die out with the older generations? Doesn’t technology
present a massive risk to gold’s standing as a store of value going
forward?”
He
admitted not knowing the answer, but did state that “you can rule out
the possibility that gold’s value to society could be called into
question in the decades ahead.”
Before identifying the four risks, Eliseo stressed the strengths of
the gold market, highlighting higher demand for the yellow metal.
“Over the decade and a half I’ve been investing in precious metals,
we’ve seen the market for gold rise, driven predominantly by the
voracious appetite of consumers in Eastern markets, who typically prefer
to own their gold in jewellery form, and where there is a high
correlation between rising real incomes and rising gold demand,” he
wrote.
Eliseo also mentioned the booming central banks demand as well as improved Western demand.
But, despite the positives, new technology and numerous products
claiming the “safe-haven” status are trying to push gold to the
sidelines, ABC Bullion pointed out.
One of the newest risks facing the physical gold market is cryptocurrency.
“Marketed as ‘digital gold’, and offering life changing returns, the
market has exploded, especially amongst millennial speculators looking
to make a quick buck,” wrote Eliseo.
And even though cryptocurrency fans might come around to embracing
the digital gold products, they are still unlikely to invest much into
the physical side of things.
“The only reason a millennial will abandon cryptocurrencies is if the
prices crash, far worse than they already have. If that happens, they
may turn to gold and silver, but by definition, they’re unlikely to have
much left to invest, even if a few made out like bandits in the great
crypto bull market,” Eliseo said. “Even if they turn to gold, they’re
far more likely to buy it via a CFD or a futures contract.”
The second risk — competition from gold-like products — is one of the biggest threats facing the physical space, Eliseo added.
“The ‘threat` is best seen through the emergence of exchange-traded
funds (ETFs), which allow investors to get a proxy physical gold
exposure through an investment via their stockbroker,” he wrote. “In
truth, these products are, in many cases, more expensive than trading
and storing physical gold (especially for larger investors with a
long-term investment timeframe), have less trading flexibility, and are
less secure than owning real physical gold.”
In the end of the day, the appeal of ETFs and other digital gold
products is based on the younger generation’s insistence of buying
investments via apps and in the blink of an eye, according to ABC
Bullion.
The third risk is the still high cost involved in buying physical gold, including production, shipment and storage.
“Given gold is a physical product that needs to be found, shipped,
refined into marketable form and eventually traded with investors, it
hasn’t been able to benefit from the quantum leap in efficiency and cost
reduction that trading in financial assets have benefited from,” Eliseo
stated.
Finally, the fourth risk comes in the form of capital ‘controls — “an
increased regulatory control that governs how capital is invested.”
Eliseo cited Europe’s UCITS legislation and Australia’s
superannuation industry as some of the examples holding the physical
demand back.