The Definitive Guide to Gold
ITS VALUE THROUGH HISTORY AND WHAT IT MEANS TO THE MODERN INVESTOR.
BROUGHT TO YOU BY NOVEM “Gold is money, everything else is credit.”
JP MORGAN
NOVEM The definitive guide to gold 2 INTRO An investment like no other
Gold is an investment unlike any other in modern history. It retains value not only over the course of one’s life but intergenerationally. The value of gold has ups and downs depending on the strength “Gold is literally in of the global economy - with gold typically strengthening in value during times of economic our blood — our uncertainty - but unlike other investments, gold will bodies contain never completely lose its value. 0.2 milligrams of Gold has held extant value for humans for over 7,000 years - and will likely remain so over the next it, mostly in our 1,000 years. No other stock, bond, or commodity blood.” has a comparable or foreseeable endurance to retain value and it is a safe bet that gold will remain a valuable commodity. It is the closest concrete expression we have to the idea of “value”.
While currency itself is an invention of humankind, gold is as close to the core of the abstract concept of currency as any single commodity. It is not hard to see why gold has a legendary appeal, a spotted history of humans building and destroying civilizations to attain it and a definite allure for the diversified investor to this day. As human technology has evolved from papyrus and pottery to smartphones and blockchain, gold has always been and will always be everlastingly valuable.
The history of gold is the history of currency; the history of currency is tantamount to the history of society as we know it. The idea to abstractly represent and value wealth in a way that creates stability and easily enables transactions is one of the wonders of the modern world, without which global trade, or even national trade would be impossible.
NOVEM The definitive guide to gold 3 SECTION 01. The value of gold
Gold is widely known as one of the most sought after precious metals, but why is gold inherently valuable and how did gold gain and maintain its status?
Its timeless appeal and humanity’s long historical relationship with gold are contributing factors to the enduring value of gold, and its success as an asset and means of exchange.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 4 01. THE VALUE OF GOLD Why do we buy gold?
Traditionally people trust gold, seeing it as a It is seen as a safe haven, possibly because its store of value – especially in uncertain times performance in the market tends to be or as a hedge against inflation of a weakening predictable. For example, when the US Dollar dollar. or the stock market drops, when inflation is high, or when it is a low-interest-rate environment, Gold has been used historically to barter for investors tend to purchase gold and/or gold prices goods, and so it has a historical element to it tend to rise. This is a reflection of how investors that makes us use it to denote value. see gold as a good option for preserving wealth in uncertain times.
“Gold has been discovered on every continent on Earth.”
SOURCE
Gold always has value
Gold has always been valuable in that its value While gold is perceived as a stable store of value, has never reached zero. In fact, it is probably the gold price reflects supply and demand, and one of the most sought after of all the precious the price can fluctuate like any commodity. For metals in existence. example, gold coins might retain near full value even when there is political instability or when it is The value of gold could be said to be moved and used across national borders. multidimensional. First, gold is perceived to be a stable store of value. However, gold Gold has a universal, international appeal that is as a physical element also offers immediate sustained to this day. value; it is highly corrosion-resistant and easily worked, so it has multiple applications from jewellery and decorative purposes to industrial applications.
NOVEM The definitive guide to gold 5 01. THE VALUE OF GOLD All currency is founded upon belief
Some of gold’s value could come from the belief factor. This means that because we have faith in the value of gold – and in part due to our trust in an external authority within our economies – we collectively recognise it as a reliable medium of exchange and indicator of value, and so gold retains its value.
All currency is based on belief, and it’s believed that the emotional attachment our historical forebears have had to gold is a driving factor in that belief.
Beyond the human belief in gold’s value, gold has a few characteristics that separate it from every other currency that has been tried. Gold’s unique coloring and luster have fascinated humans for centuries, which is why gold has been so successful.
“All money is a matter of belief.”
ADAM SMITH
NOVEM The definitive guide to gold 6 SECTION 02. The 3 characteristics of gold’s success
Gold is historically humanity’s clear choice as the eminent representation of wealth - but what makes gold the best fit? Other precious metals like silver could be and have been used to exchange wealth.
Spices and salt have been used as currency. What makes gold “the winner” as the commodity most closely associated with wealth? Gold’s success could be said to be founded upon three key characteristics:
♦♦ Workability ♦♦ Immutability ♦♦ Duality
In addition, other key factors include the ability to measure and validate gold, and the fact that it is not easy to manipulate the price of gold.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 7 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS Workability
Gold is considered a soft metal, and so it is highly workable and can be used for very fine work. It can be alloyed with other metals – from silver and copper to zinc and titanium – to make it stronger, more durable, and more suitable for other purposes such as jewellery.
Skill in minting gold
With a low melting point, gold is easier to mint and finally to the steam-powered and and use as coinage than some other metals electrical-powered minting processes of modern like titanium, zirconium, aluminium, and times - our ability to mint coins from precious and iron. And while silver has similar properties semi-precious metals has greatly advanced. that make it almost suitable for minting, it tarnishes, unlike gold. Gold rates at 2.3 on a hardness scale of 10.
The human advances in coin-minting As a very soft metal, gold is very malleable and can technologies, including gold coins, might be a be pounded, twisted, rolled, and shaped into a contributing factor to gold’s success. From the huge variety of forms without breaking apart. Gold handheld dies of the Middle Ages to the first has chemical and physical properties that make it mechanised minting processes in the 1660s, ideal for serving as currency.
Uncommon uses for gold
Gold can even be pounded into sheets so that it becomes translucent yet still remain intact. These sheets of gold allow some sunlight to pass through while reflecting infrared rays, which is why some skyscrapers use gold in their glass windows to assist with cooling.
Gold is similarly used in satellites and astronaut helmets to reflect infrared rays in space.
NOVEM The definitive guide to gold 8 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS
Gold used in technology and More gold is re- electronics coverable from a tonne of personal Gold is also highly workable because it is extremely ductile, and can be shaped into computers than wire or threadlike forms without developing from 17 tonnes of brittleness or breaking. And although gold is not magnetic, it is an excellent conductor of gold ore. electricity. This makes it extremely valuable for sectors like the electronics industry in applications like circuits. SOURCE
Gold used as medicine
Gold is even used in medicine. Gold powder, gold dust, or gold salts have been used for years to treat conditions like rheumatoid arthritis.
For health-related applications gold was used as far back as 4,500 years ago, when the ancient Egyptians used gold for dental work and other purposes. In modern times, gold has been used in aurotherapy or chrysotherapy (use of gold salts to treat rheumatoid arthritis) since the early 1900s.
Gold’s use in medicine is likely due to its purity and hence inert status when used in the human body. Its biocompatibility with the human body, along with its potential anti- inflammatory and antimicrobial properties, means it has been widely used in health fields ranging from dentistry to medicine.
NOVEM The definitive guide to gold 9 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS Immutability
Gold is one of the most non-reactive of all metals, and so it remains benign in all environments, giving it a level of immutability that is rare.
These special physical properties, including its non-oxidising, non-corroding, and non-tarnishing qualities, has been a contributing factor to the number of uses it has been mined for.
Gold endures where other metals do not
While gold is a highly workable metal, it is not corroded or tarnished by moisture, and it does not oxidise when exposed to water and oxygen. Gold is not affected by ordinary acids like other metals, which makes it a durable and versatile metal for fine work like very small coins.
Another indicator of gold’s immutability is the fact that deposits of gold found in mountains, under streambeds, and under the ocean remain unaffected until they are removed.
Scarcity and availability
Gold is still considered a very rare metal today, with less than 6.5 billion ounces of refined gold estimated to be above ground.
Since gold is immutable and retains its value, old gold (largely in the form of jewellery, watches, and ornaments) retains and increases in value, forming another part of the gold market.
Gold remains scarce, but still available enough for use. It is both scarce and available, which characterises gold with an element of duality.
NOVEM The definitive guide to gold 10 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS Duality Only so much gold is coming Gold is rare, especially when compared to abundant metals like steel and aluminium, out of the earth however it could be said to be characterised by duality due to its portability and relative availability. Gold remains a relatively scarce precious metal, and since the 16th century, the supply For example, gold isn’t as rare as rhodium of gold coming out of the ground has been and osmium, two of the rarest metals in the limited. world. Gold is scarce, yet still in sufficient quantities to serve its purposes (from medicine Currently, world production of gold is around and health and storage of value to electronics 2,500 tonnes per year with reserves possibly and jewellery), which could be driving both in the tens-of-thousands-of-tonnes range. the demand and supply-side factors that have equated to its success.
Measurement and validation
Another gold’s success is the ability to simply and reliably measure and validate gold across the world.
Weights, maths, and measures
The universal availability of weights and measures throughout gold’s history means parties using gold for exchange and as a means to store value can easily measure and validate the gold, whether it is in bullion or another form. For example, gold bars of different weights and sizes can be used to carry out transactions or store value as required.
NOVEM The definitive guide to gold 11 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS
The means to measure and sustain gold value have kept up over time
Despite gold-related scams and attempts to counterfeit and clip gold (cutting bits of coins and blocks of gold), the means to measure blocks, coins, and other units of gold is widely available. Over time, this might have contributed to people’s trust in gold and gold’s success as a valuable metal and asset.
The public trusts validation
People trust the available validations of gold, and, while weights and measures might have been fine in the past, the purity of gold can now be checked in a number of ways. Acid tests, electronic gold testers, and X-ray fluorescence spectrometers are just some of the ways jewellers and other parties handling gold can validate its purity, and quickly.
NOVEM The definitive guide to gold 12 02. THE 3 CHARACTERISTICS OF GOLD’S SUCCESS It’s not 10 Year easy to Gold Price manipulate in USD/oz the price of SOURCE gold
It is not easy to manipulate gold prices over the long term. While gold prices could be subject to short-term manipulation, over the long term, the evidence suggests that gold prices are — for the most part — determined by other factors.
Market forces and market dynamics
Over the long term, gold prices are impacted Over time, the parties involved (such as central by a number of factors, including: banks) that try to manipulate gold prices fail because they will run out of physical gold or they ♦♦ The global money supply will face a change in inflation expectations. This will lead to price surges that even governments ♦♦ US trade/debt imbalances cannot control. ♦♦ Central bank activities ♦♦ Interest rates, and Hence, gold prices tend to be resistant to manipulation, which is another likely factor in ♦♦ Commodity prices (especially oil prices.) the success of this luminous commodity.
NOVEM The definitive guide to gold 13 SECTION 03. Infrastructure and the minting of coins
One of the requirements to be a great nation, or empire, is to have a universally recognized coin or currency. That requires producing them consistently on a large scale and distributing them globally - both considerations were achieved with far more difficulty 1,000 years or more ago. However, the ability to achieve global distribution of a recognized monetary system was something of a hallmark of success for a nation because of what it says about the capabilities of that nation.
Minting gold coins – and using them as a means of exchange – requires a level of infrastructure. Countries or governments that want to use gold coins need to be able to produce them on a consistent basis. Coinage can be used to brand a nation, act as an indicator of its stability, showcase a track record of success, and make it easier to trade with that country.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 14 03. INFRASTRUCTURE AND MINTING COINS Empires were built on their capacity to mint coins
In ancient and medieval times, metal casting Like most coins during this period, denarii and smithing were critical elements in were composed of gold, silver, and bronze, minting infrastructure. but a gold aureus piece was worth 25 silver denarius pieces. Artists, apprentices, and blacksmiths brought important labour and skills to these pre- Today the minting process can be broken modern minting systems. Ovens, hammers, down into six steps. and dies for the coin imprints were essential tools and equipment during these times. ♦♦ First, a large strip of metal is fed into a blank press by hand. For example, at the peak of the denarii ♦♦ Second, the blanks are washed and currency, the ancient Romans had the heated. infrastructure to produce as many as 17 million denarius (the standard Roman silver coin) ♦♦ Third, the ‘upsetting process’, a rim is per year. raised on the edge of a coin.
The denarius in ancient Rome became the ♦♦ Fourth, the blanks then go through the major currency in the central and western striking process to get stamped with a Mediterranean. Reigning as one of the most design or inscription. important coins in ancient Rome for almost ♦♦ Fifth, the coins are inspected for errors 500 years, the denarius is an example of a before being counted, and successful currency with a strong track record of success. ♦♦ Sixth, the coins are bagged for delivery.
By nature, currency generally needs to be uniform and standardised to facilitate trust and in order to function as a currency. And with an established infrastructure, governments can usually produce coins consistently at the required volumes.
An infrastructure that provides consistent weight and purity could also support higher levels of trust in the currency and enable transactions.
NOVEM The definitive guide to gold 15 03. INFRASTRUCTURE AND MINTING COINS Branding of a nation
Some of the world’s earliest coins, like coins from Lydia in western Turkey over 2,500 years ago, feature symbols of royalty like lions and bulls. From the earliest times – as far back as the 6th century BC – coins were used to brand nations and their leaders or elites, often by being struck with profiles of royalty and leaders or other scenes displaying power.
From the ancient Romans to the ancient Chinese, different empires and dynasties made their mark on their coinage and communicated their authority and power.
Therefore, coins in ancient times had a secondary function: they were used as channels or conduits to broadcast the imagery of the ruling class, since coins were seen as the mass medium of the day.
In 46 BCE Julius Caesar minted the The stability of largest quantity a nation of gold coins yet seen in Rome.
Successful coinage could be said to demonstrate and reflect the stability and reach of a nation. For example, Roman coinage was successful in the sense that it became widely accepted and held recognised value from Africa to Europe.
The ease of exchange and transactions a currency enabled were tied to the stability and recognition of the authority of its issuing government.
NOVEM The definitive guide to gold 16 SECTION 04. The rise and fall of empires
The use of gold and other types of currency could be seen as being closely linked to the rise and fall of empires. Currency - the universal means of exchange - are vital enablers of the highly complex systems that are characteristic of empires.
Due to a currency’s essential role in economies, its poor management could contribute to the rise or collapse of empires.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 17 04. THE RISE AND FALL OF EMPIRES Currency bankrolls bureaucracy, projects, and expansion
Gold and other types of currency could be said to facilitate trade in a number of ways. For example, trade – and the currency that enables trade – was central to the rise of ancient Rome.
Currency, or a recognised means of exchange, allowed a variety of goods to be imported into Roman borders. Goods like grains, marbles, timber, iron, spices, salt, and silver could be used to support projects and expansion.
The Roman bureaucracy – administrative, logistical, and military arms – grew to support the vast wealth and economic activity of the citizens of Rome.
Marcus Aurelius The distributing bread government, to the poor rule of law, and the strength of the state
NOVEM The definitive guide to gold 18 04. THE RISE AND FALL OF EMPIRES
The legitimacy of official currency is, by logic, dependent on the government, rule of law, and the strength of the state because it is issued by the state. For example, Babylon grew into one of the largest cities in the ancient world under Amorite King Hammurabi. The city became a major military power under this king, and he eventually created the Babylonia empire (not Babylonian empire).
Though short-lived, the Babylonia had one of Without a functioning government as evident in the world’s earliest and most complete written the rule of law and the strength of the state, it’s legal codes, and as early as 2000 BC (which possible that such a monetary system could never was before Hammurabi’s reign) the city already be enforced. had a sophisticated monetary and credit system. Its dual monetary system used barley The symbiotic relationship between currency and silver as legally sanctioned mediums of and government can also be seen in the Roman exchange and standards of value. Empire. The Roman Empire minted millions of gold coins in the two centuries leading to 400 AD. The Code of Hammurabi set out “grain They also used the silver denarius. money” for certain types of payments and metal money for other types of payments, and In the face of debasement, however, there was imposed severe penalties on merchants who runaway inflation, which eventually led to raised insisted on the wrong payment type. taxes and a paralysed economy. Ultimately, this would contribute to a complete collapse of the Babylonian temples also engaged in banking Roman empire, which will be explored in further business by providing loans in silver and grain detail later. and accepting deposits that accrued interest.
Gold provides a foundation for civilization
Gold-based coinage and other types of currency were integrally linked to the rise and fall of empires, because they provided a guaranteed, authorised, and widely accepted means of exchange. This allowed parties to exchange value with ease, in contrast to the limitations associated with barter systems.
Easy exchange of value in turn drives commerce as well as technology development on new and bigger scales. From a basic currency in ancient times, banking systems continued to evolve to provide new products that support civilisation as we know it.
NOVEM The definitive guide to gold 19 04. THE RISE AND FALL OF EMPIRES
The creation of banking and lending
Banks have existed at least since the earliest currencies, and in the ancient times this was due to the fact people needed somewhere to keep their money safe. Coins that were used for everyday transactions, paying for foreign goods and services, and for paying tax needed to be kept in a safe place. In ancient times, with homes lacking safes and other security tools, people kept bank accounts at their temples.
This was true of ancient Greece, Rome, Egypt, and Babylon, where these temples also provided lending services. These temples handled small and large loans, as well as loaning to sovereigns, whilst money lenders provided other types of loans. It was the ancient Romans who set up banks as distinct operations away from temples.
NOVEM The definitive guide to gold 20 04. THE RISE AND FALL OF EMPIRES
With banking comes credit
The issuing of credit (loans) at the cost of interest soon arose with the creation of the first dedicated banks in the ancient civilisations. The ancient The Code of Romans, for example, allowed bankers to confiscate land in the face of payment defaults. Hammurabi
Later, European monarchs began taking loans from contained royal treasuries, and this easy access to finance was lending laws associated with unnecessary spending, including on wars, that led to staggering debt.
From these early banks, the fractional reserve system eventually arose. The banks of today by law need to meet reserve requirements, which means they are only required to hold a fraction of what is deposited in their banks.
The fractional reserve system attempts to ensure that banks have sufficient liquid assets in the form of reserves to fulfil normal withdrawals and transfers. It also means that modern banks create money. This is because a deposit of $1,000 can be used to lend $900 to other customers where the required reserve ratio is 10%.
The rise and fall of empires could provide valuable instruction on how gold and other coinage both facilitate and limit human civilisation. From the Roman and Byzantine Empires to Spain and Greece, currency traces the stories behind empires.
NOVEM The definitive guide to gold 21 04. THE RISE AND FALL OF EMPIRES
Greece and Alexander the Great
Alexander the Great is best known for the creation of an enormous empire spreading from Greece to India, but he is also a significant figure in the area of international currency.
When he took the throne in the aftermath of his father’s assassination, Alexander introduced the Attic coinage standard. He circulated his own coins as he went on his military campaigns. In the process he achieved a previously unknown level of uniformity in international coinage despite his currency being struck in hundreds of different mints across Europe and Asia.
Alexander’s coins always featured the head of Heracles. The two dominant coins during Alexander’s reign were the drachm and the tetradrachm, both silver-based coins. Alexander’s currency was largely used to pay for military supplies, pay soldiers, pay one’s levies and taxes, and to use as protection money for the barbarians, rather than to support trade and exchange.
Additionally, he minted vast numbers of coins so that he could use stolen Persian treasures to fund his military efforts. This is in contrast to the currency of the other empires previously discussed, whose coinage was focused on facilitating commerce.
Widely accepted, Alexander’s coinage was greatly popular throughout both the Greek and the non-Greek worlds. After Alexander’s death and the fracturing of his former empire, the regions throughout the old empire continued to mint coins using his name for the next 250 years and using them for international trade.
The Roman Empire
In addition to the largely silver-based denarius as previously mentioned, the Roman Empire used the gold-based aureus, the brass-based sestertius and dupondius.
Greek-influenced territories accepted Roman coinage even if they had their own currency.
SOURCE
NOVEM The definitive guide to gold 22 04. THE RISE AND FALL OF EMPIRES
Roman coins had intrinsic value as they contained precious metals. Romans had the advantage of knowing about coinage systems before they introduced them in 300 BC, because the Greek world had already been using coin-based currency for the past three centuries.
The double denarius would replace the denarius in the third century, when Diocletian undertook monetary reform and created denominations such as the argenteus and the follis. This was worth two times the denarius in face value, but had the weight of only 1.5 denarii.
When the effects of debasement finally materialised, the runaway inflation contributed to economic standstill and collapse in the third century AD.
The Byzantine Empire
The powerful and enormous Byzantine Empire could be said to have originated around 330 AD, when Roman emperor Constantine I declared there was a new Rome at the site of the ancient Greek colony of Byzantium.
The Byzantine Empire survived for 1,000 years after the western half of the Roman Empire fell in 476 AD Rich with culture, art, and literature, the region was also a military buffer between Europe and Asia.
Notably the Byzantine Empire continued the Roman tradition in coinage. Coins were used to pay for goods and services and to pay taxes, and they were used to reinforce the image of rulers and strengthen the allegiance of the people.
The gold solidus or nomisma was one of the most valuable coins and it would feature as part of the Byzantine coinage for 700 years - before being replaced by the hyperpyron. Each Byzantine emperor minted their own coins, and the value of coinage depended on the weight and purity of the coin.
Along with the nomisma, the miliaresion was used. Due to debasement that lowered gold content, the nomisma gradually lost value. That was until Emperor Alexios I Komnenos minted a new coin, the “hyperpyron,” which was made of electrum (an alloy of gold and silver) and worth one-third the value of the nomisma.
The hyperpyron coin survived debasements until the Byzantine Empire fell in the 15th century. 04. THE RISE AND FALL OF EMPIRES
Ferdinand and Isabella
In the years following King Ferdinand II of Aragon and Queen Isabella I of Castile’s marriage, the Kingdoms of Castile and Aragon (Spain and Portugal) were in time ruled jointly. This meant their currencies had to be adjusted.
Known as the reign of the Catholic Monarchs, the years from 1474 to 1504 was a time of immense progress and wealth that put Spain at the forefront of Europe for over a century. They strengthened the legal code, regained territories, and completed the reconquest of Spain.
With an expanding kingdom including the Canary Islands, the annexation of the Nazarí Kingdom of Granada, and the voyages of Christopher Columbus in the New World, the empire needed a stable, functioning, and above all unified monetary system.
Isabella and Ferdinand attempted to unify the coinage types, especially in Castile. They set a standard for Castile in 1475 and this included the castellano, which featured facing busts of the two monarchs. The 1475 standard also established the doble castellano, the real, and its divisors, the medio real, and the cuarto de real.
What the Spanish Catholic Monarchs did well was to establish gold standards that were not manipulated by the state for minting gold coin, the excelente de la granada, which was based on the Venetian ducat. Their downfall wasn’t in coinage so much as they failed to invest in governance and civilization where they looted gold, which lost them the war.
“Get gold, humanely if you can, but at all hazards, get gold!”
KING FERDINAND
NOVEM The definitive guide to gold 24 SECTION 05. A historical timeline of gold
From discovery to standardisation and its use in modern times, humanity’s relationship with gold has evolved as gold discoveries, technology, monetary systems have become available and changed over time.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 25 05. A HISTORICAL TIMELINE OF GOLD The timeline
A timeline of gold can be divided into three key stages: discovery, standardisation, and the modern era.
Discovery: Gold in Ancient Civilizations (5000 BC to 1091 AD)
5000 BC Gold has been used in art and jewellery since the ancient times for 3600 BC its perceived value, aesthetic appeal, By 3600 BC Egyptian goldsmiths were and workability. The ancient Egyptians applying metallurgy techniques to used electrum, a natural alloy of gold mine gold out of ores. The Egyptians and silver, in their jewellery as early as were highly successful gold miners, 5000 BC. establishing mining operations and exploring gold trade opportunities as far as the east coast of Africa and the Arabian coasts. 3000 BC The Sumerians were fond of wearing gold jewellery in 3000 BC, both by men and women. In particular, gold chains 2600 BC first began to be created in the city of A thousand years later, Mesopotamian Ur in southern Mesopotamia by 2500 artisans started using gold to create BC. jewellery and artworks reflecting their civilisation, such as the burial headdress of lapis.
NOVEM The definitive guide to gold 26 05. A HISTORICAL TIMELINE OF GOLD
In the late 19th century, German archaeologist Heinrich Schliemann’s discovery of the cache of treasure at Hissarlik in modern Turkey showcased the extensive use of gold in cities dating from the Bronze Age through to the Roman period, including Troy, which occurred around 2500 BC. Known as Priam’s Treasure, the discovery of the site yielded gold objects revealing the skill and mastery of ancient artisans working with gold, including the Jewels of Helen, a pair of gold diadems; along with rings, coins, goblets, earrings, and pendants.
1800 BC The Minoan civilization on Crete were using gold in jewellery manufacturing 1550 BC as early as 1800 BC. Gold ‘death masks’ were being produced by the Mycenaean civilization at Mycenae. They would go on to widely use coins for their 1200 BC currency, however their coinage was largely made with silver not gold. The Chavins of Peru are known to have been manufacturing gold goods from 1200 BC, and potentially even earlier.
600 BC As early as the 7th Century BC, the 564 BC Etruscans were using gold to assist with fixing animal teeth in place as part The Lydians were the first known of their dentistry work. civilisation to use gold for currency, with King Croesus minting the first gold coins in 564 BC.
500 BC The Nazca society in Peru are also 46 BC known to have perfected the art of gold casting, though their civilization In 46 BC, Julius Caesar minted the is more well-known for the amazing largest quantity of gold coins ever seen pottery and textiles they produced. in Rome to date.
NOVEM The definitive guide to gold 27 SECTION 06. Standardization: Key Historical Events (1091-1848)
From the Middle Ages through to the modern era, the use of gold would go through various transformations, as various civilisations and states sought to standardise their currencies. Key trends include standardisation and production at larger scales.
“Gold is a treasure, and he who possesses it does all he wishes to in this world, and succeeds in helping souls into paradise.”
CHRISTOPHER COLUMBUS
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 28 06. STANDARDIZATION - MODERN - KEY HISTORICAL EVENTS (1091-1848)
Standardization and production at larger scale
In 1091, the Chinese legalised the use of small squares of gold as currency. By 1284, Venice had started using a gold ducat that would become the most popular coin in the world, and in 1422 alone, Veniceans minted 1.2 million coins.
Elsewhere, the shift to standardised currency was gaining pace. In 1284, England issued the florin, the empire’s first major gold coin, which is to be followed by the noble and the angel, crown, and guinea.
By 1377, England had adopted a monetary system based on gold and silver though a metallic currency standard that was reestablished a few hundred years before with the Norman Conquest.
Finally, in 1717, the UK government established a gold standard that linked the currency to gold at a fixed price. By 1787, the first US gold coin had been struck and in 1791, the US set the price of gold at $19.49. The US passed a law in 1792 to place the country on a silver-gold standard.
NOVEM The definitive guide to gold 29 06. STANDARDIZATION - MODERN - KEY HISTORICAL THINGS (1091-1848)
Gold conquests 1370 marked the start
The standardization and production of gold of the great bullion currency at a larger scale ran parallel to famine, when major discoveries and conquests. The Egyptians were involved in some of the world’s earliest gold mines around Europe conquests as they used slaves and prisoners became completely of war for gold-mining labour. The Greeks had started mining for gold throughout the exhausted. Mediterranean and Middle Eastern regions by 550 BC, and the Romans expanded on the SOURCE know-how of the Greeks by building water- based mining systems to exploit gold sites.
As an indicator of gold’s significance in human history, the discovery of America and its resources, including gold and other minerals, might have been a major turning point in human history and paved the way for a wealthy, imperial Europe.
In the early 16th century, King Ferdinand of Spain started conquering lands in search for gold, leading to the destruction of civilisations like the Aztec and the Incas, with the amount of gold the Spanish took from the Aztecs remaining unquantified to this day. The Spanish conquistadors were interested in gold above all.
By 1720, Brazil would become the largest producer of gold, and account for almost two-thirds of the world’s supply. In the same year, the UK’s Royal Commission proposed a recall of all old currency and issuance of new specie with a gold-to-silver ratio of 16:1. This led to the gold price being established for over 200 years.
In 1848, John Marshall would discover gold flakes in Sacramento, sparking the first gold rush. The gold rushes of the 20th century were again another major turning point in world history: along with shaping communication and transportation, they quickened the expansion of empires such as that of Britain and the US.
Between 1693 and 1720 some 400,000 Portuguese and 500,000 slaves had relocated to southeastern Brazil to mine gold.
SOURCE
NOVEM The definitive guide to gold 30 SECTION 07. The Modern Era: Key Historical Events (1848-present)
In 1848, all major countries (with the exception of China) moved towards adopting the gold standard for their currencies.
From 1873 to 1900, the US would transition from using silver as a standard of value towards an official gold standard. This meant the US committed to maintaining a fixed exchange rate in relation to other countries on the gold standard, rather than relying on the British gold standard as it had previously.
The 1849 liberty head design by James B. Longacre
SOURCE
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 31 07. MODERN SECTION - KEY HISTORICAL EVENTS (1848-PRESENT)
Nixon’s abandoning of In 1913, the Federal Reserve Act mandated that Federal Reserve Notes have to be backed 40% the gold standard in gold. It is not until 1919 and the outbreak effectively of the First World War that the US and Britain suspend their gold standards. Great Britain allowed the US returned to a gold standard in 1925, before abandoning it in 1931. government to print money To avert a banking panic in 1933, the US strengthened regulations by suspending the at will. US dollar’s convertibility to gold and banning
the holding of gold by private citizens. This SOURCE forced all private individuals in the US to convert their gold into US Dollars.
With the introduction of the Bretton Woods agreement in 1944, a gold exchange standard was introduced (along with the IMF and the World Bank). This involved setting par values for currency, and gold was in effect abandoned in favour of the dollar.
Later in 1945, the US would pass laws to reduce gold backing of Federal Reserve Notes to just 14.5%, and in 1968, gold backing of Federal Reserve Notes was completely eliminated.
The ‘Nixon Shock’ of 1971 ended the US dollar’s link to gold, which was first established under the Bretton Woods Agreement. This meant the US dollar became the sole backing Gold was worth of currencies and a reserve currency for the member states. just $20.67 per ounce in 1933.
SOURCE
NOVEM The definitive guide to gold 32 07. MODERN SECTION - KEY HISTORICAL THINGS (1848-PRESENT)
In 1973, the US devalued the dollar and raised the official dollar price of gold to $42.22 per Gold Prices - 100 fine troy ounce. All currencies were then allowed to float without concern about the Year Historical price of gold. Chart In the following year, the US passed laws to allow private individuals to own gold other SOURCE than just jewellery. A year later, various US exchanges allowed trading in gold futures, and by 1978, the US had abolished the official price of gold.
In 1980, gold prices dropped from $594.92 to $410 and hit $288 an ounce in 1996. It remained a safe haven investment however, as investors continued to return in the aftermath of crises like the 9/11 attacks and the 2001 recession.
And with the introduction of the Euro in 1999, the new pan-European currency is backed by the ECB, which holds 15% of its reserves in gold. Gold Prices vs Oil
In 2008, gold hit $869.75 an ounce at the height Prices - Historical of the financial crisis. In 2010, gold hits 35 price Relationship highs due to inflation fears associated with various fiat currencies. SOURCE By 2011, gold reached an all-time record of $1,895 due to concerns the United States would default on its debt. Since then, as fears about inflation and the economy proved to be excessive, the gold price has fallen.
Beyond its use in currency purposes, gold has continued to play a significant role in the medical and healthcare sectors. Along with these practical applications, gold to this day retains rich cultural significance in jewellery, artwork, and other areas.
NOVEM The definitive guide to gold 33 SECTION 08. Gold in the Modern era
Humankind’s appetite for gold has endured for thousands of years and today, we continue to covet it for purposes relating to everything from aesthetics to technology and investing.
One way to understand our relationship with gold is to view it through the lens of economics, prices, and business cycles.
The desire for gold is the most universal and deeply rooted commercial instinct of the human race.
GERALD M LOEB
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 34 08. GOLD IN THE MODERN ERA Volatile stock markets lead to higher gold prices
Gold is traditionally viewed as a safe haven investment, with investors flocking to the metal in times of volatility. The global financial crisis of 2008 is an excellent illustration of the perceived value of gold in volatile times.
While gold and other ‘safe haven’ metals did not reach expected heights in 2018 in response to the US-China trade war and the turmoil in emerging market economies, gold is expected to gain value again, with other potential causes of volatility like Brexit and US-Saudi tensions looming.
Indeed, large inflows into gold-backed exchange-traded funds could be an indicator that investors are already turning to gold as a hedge against uncertainty.
Recessions and The Great Depression
The appeal of gold as an investment and preserver of wealth or value can be observed by reviewing its performance during times of recession.
The Great Depression sparked by the 1929 stock market crash saw many investors redeeming their paper currency for its value in gold.
As the US Treasury was concerned the country would run out of gold, the Federal Reserve raised interest rates, boosting the value of the dollar so it became more valuable than gold in 1931.
The higher rates saw many companies go bust and led to deflation. In turn, this worsened employment and sent the recession spiralling into a depression.
By 1932, investors were again turning to gold, causing a jump in prices and later forcing Roosevelt to prohibit private ownership of gold and to raise the price to $35 an ounce.
NOVEM The definitive guide to gold 35 08. GOLD IN THE MODERN ERA
Gold prices leapt from $20.63 (annual average) in 1929 to $34.69 (annual average) in 1934. Government spending cuts in 1937 reignited the depression, and it was not until 1939 when the Dust Bowl drought finally ended and defense spending in preparation for the Second World War was approved that the depression finally came to a close.
Similarly, in the 1970 to 1975 period, the recession saw gold prices jump from $37.44 (annual average) in 1970 to $139.30 (annual average) in 1975.
And in the aftermath of the 2008 financial crisis, gold would reach an all-time record price of $1,895 an ounce in September 2011.
Money supply decreased considerably between Black Tuesday and the Bank Holiday in March 1933 when there were massive bank runs across the United States.
SOURCE
NOVEM The definitive guide to gold 36 08. GOLD IN THE MODERN ERA
Gold Price in US Dollars Historical Data
SOURCE
Business cycles
There is evidence that gold prices are correlated with business cycles, and this can be used to inform a gold-investment strategy.
The two major gold bull markets in recent decades, for example, were correlated with two economic or business cycle downturns: the early to mid 1970s recession, and the great global financial crisis of 2008.
NOVEM The definitive guide to gold 37 08. GOLD IN THE MODERN ERA
Investing in gold price cycles
Gold price cycles tend to reflect economic In summary, changes in the value of the US conditions. These conditions include changes dollar, economic downturns, interest rates, in the value of the US dollar relative to other and inflation can all be driving factors behind foreign currencies. gold price cycles.
In times of a strong dollar, gold prices could be Understanding how these and other factors stable in dollar terms but more expensive in work to affect gold cycles could allow gold foreign currencies that have declined in value. investors to succeed at their investment In turn, this could push the price of gold down strategy. in dollar terms.
Conversely, when the US dollar weakens, falling gold prices in foreign-currency terms could drive up prices, as investors take advantage of the lower prices.
Similarly, when the economy is weak investors might turn to gold as stocks when other financial assets perform poorly.
Lower interest rates could be another factor when it comes to gold cycles, since lower rates make gold more attractive as an investment option compared to alternatives like bonds and fixed-income investments.
Finally, inflation tends to negatively impact the value of investment options like stocks and bonds, in turn enhancing the attractiveness of gold.
Additionally, inflation is associated with economic volatility and downturns, which could further boost the appeal of gold for investors.
NOVEM The definitive guide to gold 38 08. GOLD IN THE MODERN ERA
The chart to the right illustrates the four gold price cycles since 1971. Between 1971 and 1979, gold prices proceeded in a bull market trend.
From 1979 to 1999, the market largely followed The charts of a bearish trend. From 1999 to 2011, the these cycles: market again was bullish, but since then it has followed a bearish trajectory. bear vs. bull
Zooming into the two-decade bear market T from 1980 to 2000, at least four gold-price rebounds can be observed. The first two – between 1980 and 1982 and then 1982 and 1984 – appear to have lasted only months.
The other two rebounds – around 1986 to 1988 to 1993 to 1996 – lasted far longer, around 34 or 35 months each.
Analysis of these gold-price cycles within cycles can also yield investors some valuable insights for opportunities to make gains.
Gold as a Gold bull and perennial bear markets
option for SOURCE hedging against volatility
Although gold prices track both bullish as well as bearish trends, the long established history of gold as a safe haven investment appears to reaffirm gold as a hedge against volatility. Gold is an investment option that will be valuable for a thousand years or more in contrast to stocks.
NOVEM The definitive guide to gold 39 SECTION 09. The case for buying and keeping gold
The case for buying and holding gold include its history of holding value through the ages, its potential for hedging against volatility, and its security.
Gold – what can it not do, and undo?
WILLIAM SHAKESPEARE
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 40 09. THE CASE FOR BUYING AND KEEPING GOLD A hedge against market volatility
Gold offers a hedge against market volatility, whether the volatility is rooted in factors like inflation, weak economic activity, interest rates, a fluctuating US dollar, geopolitical instability, or another driving factor.
Gold price per troy ounce in USD since 1960, in nominal US$ and inflation adjusted in 2012 US$.
SOURCE
NOVEM The definitive guide to gold 41 09. THE CASE FOR BUYING AND KEEPING GOLD
When the economy is in a downward trend and/or stocks and other investment alternatives are volatile, gold typically becomes more attractive to investors because it helps them offset losses in other asset classes.
Research by Trinity College has confirmed that gold remains the best hedge in times of a potential stock market crash, since gold prices tend to increase dramatically for 15 days after a crash.
High levels of government debt around the world placing pressure on the value of various currencies could be another compelling trend for gold’s ability to hedge against currency volatilities.
The US dollar tends to impact the gold price more than others because gold is often denominated in dollars.
Chart of gold’s rise in price after the housing bubble burst in 2007/8
SOURCE
NOVEM The definitive guide to gold 42 09. THE CASE FOR BUYING AND KEEPING GOLD The tangibility and enduring value of gold compared to technology- based assets
Gold is a tangible asset and by nature it cannot be stored digitally and therefore hacked or stolen in a virtual sense. Additionally, it is dissimilar to technology-based assets or technology trends where ephemeral or fleeting value might be common.
This is due to disruptive new technologies superseding legacy brands, technological know-how, and/or technical intellectual property.
At the same time, the supply of gold is finite. Scarcity and limited supply could contribute to the enduring value of gold by driving higher prices.
New discoveries no longer match the supplies of gold afforded by the gold rushes of the 19th century, and economic powerhouses like China and India are major importers of gold.
Gold is a highly popular asset class in Asia, the most economically dynamic region in the world. Further, not only is gold a direct investment; it has practical applications in healthcare, technology, and jewellery making.
This means its price is driven not only by investors but also by industry trends, in the context of finite supply.
NOVEM The definitive guide to gold 43 09. THE CASE FOR BUYING AND KEEPING GOLD Gold has cultural significance
Closely linked to this enduring value of gold and perhaps driving its value is the fact gold has cultural significance across the world. For some reason – perhaps its natural beauty and radiance – gold has always been the one we associate with value, money, and currency.
Gold has been used in art, religion, medicine, healthcare, and currency for millennia in almost every known culture. Whether due to its brilliant colour or other qualities, gold appears to have achieved a level of universal cultural significance like no other precious metal.
Cultures in Egypt, Greece, Rome, Thailand, China, the Americas, and Europe vested in gold an extraordinary level of economic, religious, and social significance. This long historical cultural value is perhaps yet another factor behind the perception of gold’s value – and therefore its demand, price, and value – today.
It is a security of legacy and wealth, and is a very reliable means of keeping and holding wealth
The self-fulfilling-prophecy effect of gold could mean it is a secure vehicle for preserving legacy and wealth, whether this is across a number of years, decades, or generations in a family. In this sense, gold is a direct investment for individuals seeking to retain wealth.
Propelling this could be gold’s status as a precious metal in across human history, its early origins as currency, and its historical status as the base for the gold standard.
It could be said through these historical, cultural, and economic factors, gold remains a valuable, effective, and secure asset for securing wealth across time.
NOVEM The definitive guide to gold 44 SECTION 10. Investing in gold
When it comes to investing in gold, investors have a lot of options. To investors, gold tends to be more accessible than, for example, a barrel of oil, and with the availability of advanced financial instruments, gold can be invested in without purchasing the underlying asset: the gold itself.
Generally investors have three main choices; buy the physical asset, invest in ETFs that replicate gold prices, or trade futures and options.
Hunger for gold is made greater as more gold is acquired.
AURELIUS CLEMENS PRUDENTIUS
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 45 10. HOW TO INVEST IN GOLD Physical gold
Investors might purchase gold as part of their portfolio diversification strategy, and owning the physical metal is one way to achieve this.
Advantages Disadvantages
One key advantage of owning physical gold Buying physical gold means you might need to is the investor can be confident they have full ensure your gold coins or bullion are kept safe, legal title over the gold. Additionally, they can in perhaps a safe deposit box or a home safe. trade the asset around the clock. Another drawback or potential risk is having to vet gold dealers to ensure the investor is Further, in the long run, gold bars and coins dealing with a reputable dealer. could offer the most cost-effective way to invest in gold. This is thanks to the option Buying physical gold means the investment to lower storage costs by storing at home matches the gold price (spot price with or a private vault, though the investor is transaction and storage prices added) – gold is responsible for keeping the gold safe. exactly what you’ve bought. In contrast, other options like ETFs that only track the gold price There is potentially no third-party risk as long might not do so as closely. as you don’t buy gold in securitised form. The general advantages of investing in gold – risk reduction, hedge against currency devaluation, wealth preservation, and diversification – apply to investing in physical gold.
Earthquakes turn water into gold.
SOURCE
NOVEM The definitive guide to gold 46 10. HOW TO INVEST IN GOLD Gold futures
Gold futures are a popular option for investing in gold. Investing in gold futures means the investor pays an initial sum to enters a deal to trade gold at a certain price and volume at a future settlement date.
The investor pays the full price for the gold only when the date arrives and the deal is settled.
Advantages Disadvantages
Advantages of trading in gold futures include Gold futures could be associated with higher not needing to arrange immediate storage. default risk. Prices can be volatile and Investors can speculate both ways and realise fluctuate, which means the investor could end large returns if they successfully anticipate the up losing a considerable amount of money. movement of gold prices.
Futures exchanges determine the spot price of gold, and these prices can sometimes diverge from the real-world pricing for the physical metal.
SOURCE
NOVEM The definitive guide to gold 47 10. HOW TO INVEST IN GOLD ETFs
Exchange Traded Funds (ETFs) allow investors to trade by buying shares but with the benefit of a direct investment in gold. They are backed by physical gold, and investors can buy these through brokers or online facilities.
Advantages Disadvantages
ETFs are highly flexible, as any investor with a One key drawback of ETFs is investors do not brokerage account can invest in them. actually own the gold when they invest in an ETF. They can be used, much like golds futures, to speculate on gold price trends or to hedge Instead, they buy a security that in theory is against a position. backed by gold that is owned by a third party.
Investing in ETFs means investors can avoid Trading is limited to only when the stock the inconvenience and costs associated market is open, and ETFs come with with storing physical gold. management fees whilst the gold itself produces no income for the investor.
The relative 3 Olympic swimming price of gold pools can hold all the gold ever mined in Gold ETFs tend to closely track the actual price of the underlying commodity. the world.
However, if the ETF is of the type that invests SOURCE in gold companies, the ETF might not be as closely correlated to gold prices.
NOVEM The definitive guide to gold 48 10. HOW TO INVEST IN GOLD Artwork of Chinese workers excavating and washing gold ores at a gold mine in Australia. The worker in the foreground is using a device called a Investing in cradle (berceau) to wash ores containing gold.
gold mining The rocks, sands and gravel from the excavations are placed Another way to invest in gold is to invest in in the upper box, which has gold mining by buying shares in gold a perforated base. Water is mining companies. poured over the rocks to carry the lighter rocks and specks of gold to the lower level. This lower level is an inclined plane, Advantages covered in a blanket.
If investors buy shares in a company that The device is rocked using the eventually becomes successful, they could lever, and the lighter waste enjoy good returns. gravel exits at right, while the gold collects at the other end of Another advantage is the shares of these the device. Artwork from Mines mining companies tend to trade at a large and Miners (L. Simonin, 1868). discount relative to the price of gold.
It is relatively simple to invest in these SOURCE companies, as you can buy the shares through a broker or online trading platform. Disadvantages
Purchasing shares in mining companies could be one of the riskier ways to invest in gold.
These companies might never find gold or locate a profitable mine. Those that find viable sites might have their profitability affected by output variations and costs, which can lead to share price volatility.
Note: Investing in the shares of a gold mining company may allow investors to gain exposure to the gold price. However, note the potential for growth and returns on the shares are determined by the future earnings of the mining company and not only the price of gold
NOVEM The definitive guide to gold 49 10. HOW TO INVEST IN GOLD What about blockchain? Advantages
Fungibility “If you use precious Fungibility means each unit of the underlying good or commodity, such as gold, is metals to back essentially interchangeable. One gram of pure gold is interchangeable with any other unit something on and is valued the same. The fungibility of gold blockchain or makes it easier to trade, and this could be advantageous for blockchain-based trading. something that is allied to blockchain, Bitcoin and other cryptocurrencies are also inherently fungible, which means they can it retains its easily be “tagged” to represent units of gold to facilitate the trading of the precious metal. intrinsic value, unlike the offerings Blockchain is from Bitcoin and more secure Ethereum, which really rely on Blockchain is designed to be immune to everyone believing tampering or hacking. The process uses a cryptographic fingerprint unique to each that there’s block, as well as a so-called ‘consensus protocol.’ The security benefits of blockchain- something behind it.” based gold platforms could mean lower counterparty risk and ease of verification of RICHARD HAYES, PERTH MINT ownership of gold. The result could be greater trust, transparency, and efficiency.
NOVEM The definitive guide to gold 50 10. HOW TO INVEST IN GOLD
It’s fast Optional storage
Blockchain-based trading platforms could also Investors could store their own gold (at home facilitate price discovery, streamline settlement or in a secure vault) traded over blockchain- and ownership verification, enhance liquidity based platforms, or they could take advantage of gold-trading markets, and thereby speed up of blockchain-based gold marketplaces that the process, whilst still ensuring accuracy. hold the physical gold in trust on their behalf.
Disadvantages
Few players in the market are doing it right
Blockchain-based gold trading is yet another way to invest in gold. While blockchain could eventually allow investors and players to trace the origin of the gold they’re investing in, currently the complexity of the commodities sector means some players might not yet be able to offer full transparency.
Eventually, however, investors could participate in a more transparent environment encompassing the supply chain as well as the trading process.
Current blockchain players in the gold-trading space could have additional yet-to-be-realised opportunities in optimising post-trade settlement processes, along with turning gold into a true digital asset.
Investors need to conduct An immature market for due diligence the blockchain-focused
While blockchain-enabled trading could make Finally, the blockchain-based gold trading the transaction process more secure, as with market might still be in its early stages, with a any type of investing, the investor still needs to number of players launching their products conduct due diligence into both the underlying only in recent years. asset, the gold, and the platform or tool enabling the trade. Blockchain itself is still a nascent technology, so it might be some time before its true This is because the gold exchange itself could potential for facilitating gold investing be fraudulent, and the blockchain transaction becomes clear. Tokens that represent a real itself could come with certain risks and connection to physical gold offer a vulnerabilities. reliable value.
NOVEM The definitive guide to gold 51 10. HOW TO INVEST IN GOLD
The relative price of gold
Blockchain-enabled gold trading could closely track the price of gold if investors are directly buying or selling physical gold. However, other types of blockchain-based trading options might diverge from gold prices.
For example, smart contracts, like futures contracts, might or might not closely track the gold price.
Comparison chart
Physical Gold ETF Gold Blockchain Gold Futures Gold Mining Gold
Accessibility Yes No No No Yes (Novem)
Market Price Yes Depends Depends No Yes (with fees) (markets fluctuate; (more than (operating valuated 1/day) gold futures) costs)
Third-Party Yes No No No Yes (by seller) Verifications
Fungibility No (Limited) Yes Yes Yes Yes
NOVEM The definitive guide to gold 52 SECTION 11. Blockchain for a modern gold ecosystem
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 53 11. BLOCKCHAIN FOR A MODERN GOLD ECOSYSTEM ! Blockchain is here to stay
The technology underpinning cryptocurrencies and blockchain has been available for around a decade, and it’s likely here to stay.
From cryptocurrencies and transactions to medical and real estate transactions, blockchain is expected to continue shaping our world in a multitude of ways across thousands of industries.
Some of the reasons for this could be the ways it affords greater transparency, the removal CRYPTOCURRENCY MARKET of middlemen or facilitating institutions, efficiency, versatility, and security.
Blockchain technology and their core features
Core features of blockchain technology can ♦♦ Has the eventual goal of building be understood by exploring platforms and a distributed network-based smart cryptocurrencies such as NEO and Eth. economy system ♦♦ Enables the digitisation of assets on NEO’s key features include the following: the NEO blockchain in a transparent and decentralised manner without ♦♦ Supports its own cryptocurrency intermediaries including NEO and GAS ♦♦ Allows users to exchange different kinds ♦♦ Supports the development of digital of assets by linking the physical asset assets and smart contracts with a unique avatar.
NOVEM The definitive guide to gold 54 11. BLOCKCHAIN FOR A MODERN GOLD ECOSYSTEM !
Ethereum’s key features include the following:
♦♦ Offers a distributed public blockchain network ♦♦ Allows developers to build decentralised applications using blockchain technology ♦♦ Enables smart contracts, so self-executing contracts from performance to payment ♦♦ Can support decentralised applications for any industry, from voting to banking
Gold blockchain landscape
The gold blockchain landscape has evolved as more players enter the space. Different players have used various platforms to build their gold-based securities or stablecoins, which are designed to have a fixed valued through pegging to a real underlying asset and so, in turn, to that asset’s history of trust and reliability.
This means they have an intrinsic value and tend to be much less volatile.
♦♦ Digix - Digix is a Ethereum-based stablecoin that ties the value of its DGX token to one gram of gold
♦♦ Novem - Novem, 100% backed by LBMA-certified gold with 100 tokens exchangeable for 1g of gold, is built on the NEO blockchain platform. Gold is securely stored by Loomis and audited by third-parties
♦♦ Eidoo - Eidoo has created a Ethereum-based stablecoin, the ekon. Each ekon is redeemable for 1 gram of 99.9% pure gold, and the reserves will be audited every three months
♦♦ DinarCoin - is a Ethereum-based gold trading platform, and its value is equal to a gold spot contract and the XAU, as well as being backed by physical gold at rates of 1g to 100g of gold (silver is also used).
♦♦ Royal Mint Gold - Royal Mint Gold is a cryptocurrency backed by gold reserves in its UK-based Royal Mint vault at a rate of 1g to 100g per token. Royal Mint Gold is built on Prova, and open source blockchain.
♦♦ X8currency - X8currency is a stablecoin also built on Ethereum’s blockchain platform. Backed by gold and eight fiat currencies, the company’s gold reserves are located in Switzerland. Coins are linked to gold based on real-time price fluctuations.
NOVEM The definitive guide to gold 55 11. BLOCKCHAIN FOR A MODERN GOLD ECOSYSTEM ! Is history repeating itself?
Is the rise of cryptocurrencies like Bitcoin mirroring the gold rush of the 19th century? Certainly, there appear to be strong parallel trends between the rise of blockchain-enabled cryptocurrencies and the history of gold.
Gold & cryptocurrencies: parallels
The California Gold Rush and the Bitcoin rush could be roughly broken down into three major stages.
♦♦ The boom - Between 1848 and 1852, 90,000 gold miners moved to California and achieved record gold yields. Between April and November 2013, Bitcoin leapt from $97 to $1,119.
♦♦ Technical innovation - Both gold and Bitcoin experienced an innovation stage, where 1853 saw hydraulic mining elevating the rush into an established industry. As for Bitcoin, by 2014 there were more than 300 startups and millions of dollars invested in the space, driving innovation.
♦♦ Plateau - By 1857, gold yields in California had settled down to $45 million a year, and similarly, Bitcoin prices seemed to have stabilised after massive growth by 2014.
♦♦ However, the total value of all Bitcoin extracted by January 2014 ($9.1 billion) far exceeded the Gold Rush volumes as of 1856 ($2.23 billion). ♦♦ Bitcoin of course peaked at nearly $20,000 in December 2017, but had fallen back to $6,400 a year later. ♦♦ Recently, Bitcoin has traded with a strong correlation to gold prices, due to various factors.
While bitcoin has been called “blockchain gold” the comparison does too much justice to bitcoin and not enough to gold. Gold has endured for thousands of years without the wild fluctuations that bitcoin has experienced just in the last decade.
It might be too early to tell if bitcoin and other cryptocurrencies are as good as gold at storing value, but the future seems bright for these blockchain-based currencies.
NOVEM The definitive guide to gold 56 11. BLOCKCHAIN FOR A MODERN GOLD ECOSYSTEM !
Perhaps stablecoins pegged to gold offer the best of both worlds for investors seeking to avoid the volatility of cryptocurrencies.
Rapid evolution leading to the rise of major players
In a space where regulatory clarity is pending, what can investors expect? The early years of cryptocurrency speculation might be over, and it could be followed by accelerated evolution as the industry matures.
Investors could expect to see major players in blockchain, cryptocurrencies, and stablecoins come to the fore. The best of these players could scale up and become dominant in the coming years.
NOVEM The definitive guide to gold 57 SECTION 12. An introduction to Novem
Novem is an industry-leading gold storage and asset management company that was incorporated in Liechtenstein and based in Austria. Novem is due to launch their NNN token, the world’s most transparent gold-backed stablecoin, in 2019.
As cited by Forbes, Novem has approximately 35 kg in LBMA-certified gold (Q1: 2019), stored securely by Loomis International. The amount of gold translates to almost $1,500,000 USD in collateral.
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 58 12. AN INTRODUCTION TO NOVEM
Novem is an easier way to buy gold
Among Novem’s goals are revolutionising This will be the first gold-backed token the gold-buying experience for investors. launched on the blockchain-based NEO Its NNN or 999.9 golden token will be 100% platform, offering unparalleled security as backed by LBMA-certified gold held in trust the platform will soon be hardened against in Frankfurt, Germany, by Loomis. quantum computers.
Each NNN will be redeemable for physical Novem offers a second token, the Novem gold, with each token exchangeable for (NVM), which is a true utility token used to 1/100g of gold (100 tokens is equivalent to pay for services and trading costs relating to one gram of gold). the 999.9 or NNN gold token.
There is no honest man – not one – that can resist the attraction of gold!
ARISTOPHANES
to create a better, more secure way for Who they are people to buy and sell gold. The result was Novem and its NEO-based token, NNN. Today, Novem is comprised of its its expert Novem was founded by Wolfgang Schmid founders as well as a world-class team and Mario Schober, two experts in precious of professionals with expertise in digital metals and gemstones with global trading development, offline and online marketing, experience spanning Germany, Austria, and business development, and project the U.A.E. management.
Having encountered major deficiencies Located in Vaduz, Liechtenstein, where associated with fraud, deception, and stringent cryptocurrency regulations trust and transparency in the precious apply, Novem has been founded on a metals industry, Novem’s founders set out solid foundation for providing the safest stablecoin in the world.
NOVEM The definitive guide to gold 59 12. AN INTRODUCTION TO NOVEM
The goals
Novem is changing how gold is bought, sold, and store around the world. Both tokens - the NNN gold token and NVM - are designed to facilitate easier, safer transactions for those buying gold and trading on exchanges.
Safety and security first
Novem’s highest priority is offering a safer and more secure option for buyers and traders.
Novem offers a superior way to purchase gold, with all purchases verified by third parties. The NEO-based blockchain technology is highly scalable and secure and all transactions are recorded in an unalterable record on the blockchain.
For those seeking to own gold, Novem’s third-party certified and managed gold-backing system allows investors to own and hold gold safely for the long term without having to manage the physical asset.
A vision beyond tokens
Novem has two key goals:
♦♦ Modernisation of metals industry procedures - Create an immutable, secure, and distributed ledger of ownership in order to modernise the outdated procedures of the metals industry.
♦♦ Large network of stores - Establish a large network of stores that operate on ethical principles and provides certainty for gold buyers, refiners, investors, and traders. Novem’s planned network of retail stores will enable investors and other members of the general public to bring in their jewellery and old gold to sell, with the ability to exchange gold for fiat (local currency), and eventually, cryptocurrencies, like “Novem tokens.” Both institutional and sophisticated investors have taken a strong interest in Novem through private sales, due to Novem’s scalability, business model, and team.
NOVEM The definitive guide to gold 60 12. AN INTRODUCTION TO NOVEM
Why Novem choose to build on NEO Blockchain
Novem chose to build its cryptocurrencies on NEO for two key reasons. First, the NEO blockchain platform offers incredible functionality, including smart contracts, and NEO has a large, diverse developer community.
Second and more importantly, NEO will soon be proofed against quantum-computer attacks, which enhances the long-term safety for token holders. This is a particularly vital concern when buyers are dealing with considerable quantities of gold.
NOVEM The definitive guide to gold 61 SECTION 13. The future of gold
NOVEM The definitive guide to gold
NOVEM The definitive guide to gold 62 13. NOVEM IS THE FUTURE OF THE GOLD INDUSTRY
Blockchain technologies are likely the path forward for gold and other precious metals, allowing players to tokenize the asset to facilitate trade, as well as track complex supply chains to improve quality and reduce fraud.
Even the LBMA has adopted blockchain technology to assist with their supply chain tracking.
Security, safety, reduction of number of parties required to verify payments, and You have to choose dramatically shortening transaction times are some of most compelling drivers of (as a voter) between blockchain’s promise for gold trading. trusting to the natural stability Novem’s NNN is well-positioned to make of gold and the a large impact in the gold industry. Novem provides investors with the ability to own real natural stability of physical gold that is safely stored and audited by third parties. the honesty and intelligence of the Since Novem has developed strong relationships with major players in the members of the industry, they have the potential to offer more Government. And, competitive gold prices for buyers at scale. with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.
GEORGE BERNARD SHAW
NOVEM The definitive guide to gold 63 13. NOVEM IS THE FUTURE OF THE GOLD INDUSTRY The winner is still gold
Gold has been used for trade and to store value for centuries, and the emergence of blockchain-based technologies like Novem’s gold-backed token offering could mean, rapid modernisation of how gold is traded, as well as supply-chain tracking.
Age-old issues like validation of quantity and ownership, transferring and security of the physical asset, and securing the transaction and payment could be easily addressed by blockchain- enabled platforms.
With players like Novem leading the There can be no innovation wave and race to market, the precious metal industry, gold buyers, other criterion, no refiners, and investors could enjoy optimal other standard than levels of security and transparency along with unmatched transactional efficiency. gold. Yes, gold which never changes, It is a fair bet, backed by thousands of years of observation, that gold will retain which can be shaped and grow its value in the long term, despite short-term fluctuations. However, ways into ingots, bars, to buy, store, hold, and trade gold will coins, which has continue to evolve -- and the smart investor will evolve along with them. no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence.
CHARLES DE GAULLE
NOVEM The definitive guide to gold 64 NOVEM A Better Way to Buy Gold