It was fascinating to listen to gold miners debate the merits of gold versus Bitcoin as a store of value at the recent Mining Indaba in Cape Town.
The debate took place as stablecoin TerraUSD was in full meltdown, dragging the rest of the cryptos down with it and erasing more than $200 billion in crypto value in a less than a day.
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Tech stocks followed suit, with the Nasdaq now down 25% since the start of 2022.
All this barely moved the gold needle, as the metal price remained stubbornly glued to its support level around $1 820/oz.
Last week, Bitcoin registered a 55% pullback from its November 2021 peak above $67 000 before clawing back some of its losses.
Gold a better store of value?
“Maybe I don’t understand cryptos, but I see gold as the better store of value [than Bitcoin],” said Clive Johnson, CEO of B2Gold, the Canadian miner producing roughly one million ounces a year.
“Gold is the right element to protect wealth,” added Sébastien de Montessus, CEO of Endeavour Mining, which has mining operations in Senegal, Côte d’Ivoire and Burkina Faso.
What’s needed are cryptos backed by gold, he added.
There are a few of these already on the market, the largest being Pax Gold (PAXG), which is fully backed by physical gold. Another is Tether Gold.
Both allow investors to purchase a digital stablecoin backed by the physical metal without having to incur the trouble and expense of storage and insurance.
While TerraUSD was busy evaporating into thin air, gold miners discussed the opportunity they see for a different type of stablecoin or crypto.
Time for change?
“No one trusts the current global reserve currency [the US dollar],” said Mark Bristow, CEO of Barrick Gold, the world’s second largest gold producer. “We’re in bubble territory, when every TV presenter is trying to convince you that [asset] prices can only go higher. We need a different currency and a different global contract.”
Bristow commended the World Gold Council for its efforts to make gold fully fungible (more standard and exchangeable). “A transparent, regulated free market will take gold to a new place,” added Bristow.
Commenting on the disaster that befell the TerraUSD stablecoin, Bristow said the validity of stablecoins is as weak as the fiat currencies they are trying to replace.
In March, the London Bullion Market Association and the World Gold Council announced they were collaborating to develop and implement an international system of gold bar integrity, chain of custody and provenance. Using two distributed ledgers, the collaboration aims to tracks bars of gold as they are bought and sold, verifying their provenance from mine to vault.
This is not dissimilar to the Kimberly diamond certification process, set up to eliminate blood diamonds.
Gold vs Bitcoin
John Mulligan, the World Gold Council’s director for market relations and climate change lead, told the indaba that surging inflation and the war in Ukraine were the triggers behind the 34% increase in demand for gold in the first quarter of 2022. “Institutional demand came roaring back,” said Mulligan, “helped by ETF [exchange-traded fund] demand and the Russian war.”
Gold ETFs had their strongest quarterly inflows since Q3 2020, fuelled by safe-haven demand. Holdings jumped by 269 tons, more than reversing the 174 ton annual net outflow from 2021.
Bar and coin investment was down 20% in Q1, and jewellery demand was 7% lower than a year ago, but central banks added 84 tons to their global reserves.
B2Gold achieved the highest production on record during Covid, but maintained a firm eye on costs, as it cannot be assumed that just because inflation is high, gold prices will go up.
Q1 gold demand up y/y as strong ETF flows offset weaker jewellery and retail investment