The Perth Mint's release of digital gold certificates for trading, holding, and transferring physical gold could have profound consequences for the $US98 billion ($122.5 billion) in gold-backed exchange traded funds.
The technology underpinning the digital gold certificates could have other uses such as the clearing and settlement of equities.
At this stage the digitisation of gold ownership by the Perth Mint is available only to institutional investors, such as banks, which can then offer it to retail customers.
But it is likely that the Perth Mint will overcome the difficult regulatory obstacles to direct retail ownership such as the know-your-customer rules and anti-money laundering regulations.
When that occurs the Perth Mint's digital certificates could become a genuine challenger to gold-backed ETFs, which now own about 2,362 tonnes of gold, according to the World Gold Council.
Perth Mint is using technology supplied by digi.cash, a Sydney-based company backed by the Capital Markets Research Centre, to create gold certificates that can be traded on a smart phone.
The supplier of the certificates is a company called InfiniGold, a joint venture between digi.cash and Digital Access Australia. Steve Belloti, the former head of global markets at ANZ Banking Group controls Digital Access Australia.
Andreas Furche, who is chief executive of digi.cash, says the Perth Mint's digital gold certificates will have at least two advantages over gold-backed ETFs.
The first is that they will be cheaper to own.
He said the cost of holding a digital gold certificate issued by Perth Mint will be less than the 30 to 40 basis points charged by ETFs. The world's largest ETF, the SPDR Gold Shares, charges 40 basis points of the net asset value each year. The fund has a market capitalisation of $US36 billion.
The second advantage is that the digital gold certificates provide direct ownership of the gold held in the vaults at the Perth Mint. While ETFs are backed by physical gold held in vaults and warehouses, they interpose a third party between the investor and the bullion.
This creates the risk that the counterparty, such as a fund manager, will not be able to meet their obligations to supply the physical gold. Another way of looking at a gold-backed ETF is to think of it as a promissory note for the delivery of gold. ...
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