Editorial Team

The Braintrust: Alex Daley (GBI) on Gold as the Proto-Bitcoin

At this moment of economic instability, with the stock market seemingly unrelated to the actual reality on the ground, more and more people are investing in hedge investments to diversify their portfolios. The Bitcoin boom of the last few months has shown that many investors — especially millennials — have more faith in crypto than any specific industry or national currency. Similarly, a recent survey by Gold IRA Guide has found that millennials have also begun to buy gold and silver at a rate higher than older generations.

In our ongoing effort to create a money superapp, Unifimoney has partnered with GBI, one of the most trusted names in the precious metals industry, to become the first digital bank to offer precious metals investing. Unifimoney users will be able to purchase physical gold and silver held in GBI’s network of trusted third-party vaults. With the click of a button, the precious metals become fully yours, accessible at any moment to take delivery of or to sell. 

We gave a call to GBI’s Chief Marketing Officer Alex Daley to better understand why millennials are entering the precious-metal investment market and what makes gold such a valuable asset during uncertain times.

Traditionally, who was in the market for gold bullion and other precious metals? And how have the demographics on precious-metal investment changed over the last year?

It's funny, the history of gold bullion is much bigger than any other investing class. For millennia, it has been the world's oldest form of money and probably the longest continuously tradable asset. Yet over the last century, as stocks and bonds became easier asset classes to invest in — and asset classes that banks could make a lot more money selling to people — they took away a little bit of the mainstream appeal of gold and silver. We saw gold become more of an institutional asset — a place where governments and huge bullion banks that do global trade deals in gold invest — especially in the West. Your average American or European investor was a lot less likely to own gold, especially over the last 50 years. 

Which is ironic, because gold has been one of the best performing assets of that same last half century. Any portfolio invested in gold has seen less volatility and had higher overall returns with gold than without.

What we've seen over the last couple of years, rapidly increasing in the current environment, is more attention to the asset class from investors in the US and Europe, especially, which had fallen behind the curve on gold ownership compared to other regions. People who lived through the Dot Com Crash, and 2008, and now the Coronavirus Crash, and have seen this massive, massive influx of money printing pumped into the market this year are starting to say to themselves, 'Geez, maybe I oughta own some gold. It's performed so well and the reasons that it's performed so well remain intact and are increasing.’ Those reasons are: record debt levels for corporations, for governments, for individuals, and increasing inflation of currencies. As governments expand the money supply to try to paper over systemic problems, it's led more and more people to see that there's a lot of currency risk. Gold tends to be counter cyclical — it’s a powerful hedge. 

We've talked to a few experts on Bitcoin, crypto tokens and alternative assets for the Braintrust series. Do you view the value of gold investment similarly to how they view crypto: that precious metals are a global currency that's untied to any specific country, which allows them to be more stable?

Absolutely. Gold really was Bitcoin before there was Bitcoin. You can think of it as a much more mature Bitcoin market with much larger participation: a $10+ trillion asset class that trades hundreds of billions of dollars a month. 

Gold was the original major asset class to have no counterparty risk and it remains the leader. Bitcoin effectively tried to model itself as a digital version of gold. They even call the creation of Bitcoin "mining." The value of gold is that there's a natural increasingly difficult process of adding more gold into the system. That means inflation is predictable, just like it is in cryptocurrencies. Because no one can just issue new gold, that takes its value out of the hands of politicians, and makes it a much more steady, predictable and dependable form of money versus a fiat currency. And a natural hedge to other markets as a result..

So, for novices like me and some of our readers, can you kind of break down the differences and pros and cons for ETFs versus gold stocks versus gold coins or gold bars and fractional investing?

The simplest and purest way to invest is in physical gold and silver. It is no one else's liability and no one else's asset but yours. Gold coins and bars are something tangible that you can own and invest in. But do you want to stuff $25,000 or $50,000 worth of gold under your mattress? No, of course not. It becomes illiquid and becomes a security risk. And it's just not convenient. 

The way that Unifimoney is entering the precious metals market together with GBI is to allow you to own physical gold and silver stored in an independent vault on your behalf. The precious metals are accessible digitally — you can buy it in whole pieces or in fractional increments down to the penny. Either way, you own it. It's in your name. It is your investment that you own and you control, stored on your behalf by a trusted third party like Brinks. It's not an asset of Unifimoney; it's not an asset of GBI. 

This type of precious metal investing gives you all the benefits of physical gold in the sense of very limited counterparty risk, but it also gives you all the liquidity of owning stocks and bonds or cryptos. You can buy and sell the gold 24/7 and if you need to take delivery or move it from one place to another, you can receive it and go put it in a safe deposit box, if that makes you more comfortable. So, you get the benefits of the physical without the drawbacks. 

When you start to get into Exchange Traded Funds, ETFs, you're introducing counterparty risk, because ETFs start to look like a derivative. Sure, there's a big pile of gold somewhere, but you can never take delivery of it. It's not really your asset. It might be lent out to others. And most importantly, if something goes wrong, it could be years before you see your investment back if a company goes bankrupt. We saw that with situations like MF Global, where customers who owned their commodities like gold and silver through MF Global had to wait years to get their money back because it wasn’t held in clear title, at an independent custodian, under bailment.

That's why we insist on third-party vaulting and physical gold ownership, in your name only. It keeps it simple. It takes away any of that risk of being sort of tied up in the banking system. If you're going to buy an asset whose goal is to be inversely correlated to the stock markets and the money markets, then isn't the goal to own it in a way that's not tied up with the performance of those markets?

If you try to trade things like gold futures, and other more complicated derivatives, you can quickly find yourself in a position where the market for gold and the price of that security are moving in different directions. That can mean you don't effectively get the exposure to the asset that you intended. Whereas with physical gold there is no risk it decouples like that.

As for gold stocks, they are even more of a leverage tool. Sure, if gold doubles in price, there could be a gold stock that makes four times the profit instead of just twice the profit, right? There's speculative value in that, for sure. But you're also betting on a management team and you're betting on a geopolitical area. You're investing in that company that has that mine in that country, that management team, and that board of directors. So there is enormous execution risk and far more due diligence necessary in exchange for that potential leverage. Also, when the overall stock markets go down, gold stocks usually go down, too. That’s because these mining companies need to borrow from the same difficult markets, increasing risks and costs. The best gold stocks can rise faster than the market, but there's this execution risk and market correlation. They just as easily can go out of business. That's a very different kind of investment. It's speculation. Whereas buying physical gold itself is really meant to be a hedge — a stabilizing force in a portfolio. There’s a place for both.

So why do you think Millennials are suddenly more interested in investing in precious metals when it used to be a somewhat older demographic that tended towards it?

This is a generation that has grown up through three or four major market crashes. If you're 35 today, you were a toddler during the 1987 Crash. You saw the effect of the Dot Com Crash in high school and watched it evaporate half of the life savings of your family. Then, right as you're getting your first job or putting your first investments in the market, the 2008 Great Recession hits, evaporating the job market. And now the COVID crash and response. Nobody understands what an economic crisis can do to your portfolio better than millennials who have lived through that many crashes in that short of a lifespan. 

They understand that real diversification isn't "do I own some Facebook and some Tesla?" Real diversification is different asset classes that are not directly correlated to each other and that have a whole different means of valuation and of risk (in terms of their markets, how they're managed, and even politically). They understand that diversification means you don't just blindly invest 99% of your money in US stocks and US dollar denominated assets because that’s all your 401k plan offers. It means taking some of the power over your financial health away from the politicians who issue the dollars and the other massive institutions that seem to get us into these messes every couple of years.

I think that the increasing interest in precious metals investing comes from everybody realizing that not only has gold performed phenomenally through all of these events they've lived through, but that the underlying forces that have led to these events are actually more amplified now than they've ever been. I can't even keep count of the trillions of dollars the US deficit has exploded to in the wake of the Coronavirus, but clearly that debt will come home to roost. The interest in this asset class is going up as people realize that we've gone from high risk to extreme risk over this last year.

And how will the partnership with Unifimoney help serve this high-earning millennial customer class?

GBI's commitment has always been to make physical gold as accessible as stocks, bonds, and every other major asset class has become with new technology. We want to make it easy to buy, easy to sell, and easy to own. We're proud that we’ve been able to do that without all the drawbacks of derivatives: without adding unnecessary risk, without complicating the process, and without undermining gold's most valuable features. 

Partnering with Unifimoney is an opportunity to put our powerful platform — which manages billions of dollars of physical gold for investors today — directly in front of these young professionals that demand a single place to manage their financial lives. These Unifimoney users don't have to fiddle with different accounts for every type of investment or wait in line at the bank to make a wire transfer and fill out paperwork. They want one place where they can invest across all the different asset classes and partnering with Unifimoney helps GBI complete our vision of easier physical gold investing by integrating right into a financial superapp.

You have the power to sell gold and buy Bitcoin, or sell Bitcoin and buy an ETF of tech stocks, or sell stocks and buy gold. That's the dream. And that's what these kinds of apps make possible.


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*Important information and disclaimers

The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.