Other highlights from the report include:

Recent inflows and the rising gold price pushed global gold ETFs’ total AUM to USD246 billion, a month-end peak. Collective holdings rebounded to 3,154t, the highest since January

Trading volumes rose across the board in July with exchange-traded derivatives leading the rebound, and growing prospects of major central banks delivering rate cuts ahead pushed up COMEX gold future net longs to a multi-year month-end high.

Since the snap election was called, there has been a 49 per cent increase in the number of customers buying precious metals bullion through The Royal Mint while the volume of gold purchases has doubled (up 117 per cent) from the previous week. The Royal Mint’s bullion division has seen customer spend increase by 145 per cent week-on-week while there has been a 10 per cent uplift in first-time investors.

42 per cent of investors last week were Generation X (aged 44-59). Physical investment products including 1oz gold and silver Britannia coins, large gold bars, and sovereign coins have proven to be particularly popular alongside The Royal Mint’s suite of digital products.

Commenting on the data, Stuart O’Reilly, The Royal Mint’s Market Insight Manager says:

“The uplift in precious metals investing we have seen over the past week seems to have been driven by ‘safe-haven’ buying from investors who are attempting to mitigate the risks associated with the current uncertainty. Elections lead to increased questions around the future of the economy, tax, and security which can cause spikes in investment activity and greater interest in precious metals. Due to gold’s safe-haven status and lack of correlation with other assets, we tend to see surges in the buying of gold coins and bars when investors are uncertain about the future. In addition to the general election, investors are keeping a close eye on whether interest rates will come down and when that might happen, as well as looking ahead to America’s elections in November.”

World-renowned precious metals retailer and leading voice in commodities news, data, and insights today announce the upcoming launch of Kitco Gold (ticker: KGLD), a gold-backed stablecoin fully backed by physical gold held securely in DirectReserve vaults. It combines the safe-haven benefits of owning physical gold with the flexibility, transparency, affordability, and security of a digital asset.
 
The project is the first major technology adoption from the traditional precious metals and gold sector, launched by a real-metals trading group with over 40 years of history in providing precious metals investment products and services worldwide. 
 
Technology innovation in gold-backed stablecoins has so far been limited and only executed by fintech innovators, but Kitco will tap into their strong institutional investors base who are seeking the digital equivalent of Kitco’s depositories and vaults, audited to the highest industry standards.
 
The launch has been made possible through a consortium of partners with a long history of building institutional trust in traditional and digital assets. First Digital Trust will administer the token while Stably and Tradewind Markets will provide the multi-layers of trust and security to record the gold on the blockchain.   
 
Kitco Gold is an ERC-20 token that will be easily integrated with exchanges, wallets, lending platforms, and other blockchain products and ecosystems. Kitco Gold is fully backed by physical gold held securely in DirectReserve vaults and is tied directly to the real-time market value of the spot gold price. Investors will access the benefits of owning real physical gold with the flexibility, speed, convenience, affordability, and security of a digital asset.
 
“We’ve been looking forward to unveiling Kitco Gold, representing a digital receipt of physical gold ownership, which is digitally spendable. Buyers will be able to access a secure and reliable gold token, the most robust asset class to date. Institutional investors will have a competitive alternative to traditional gold products such as gold ETFs, with the additional benefits of real-time trading and settlement enabled by blockchain technology,” says John Dourekas, Chief Business development officer Kitco Digital Metals Group. “Our mission is to bring the gold-backed asset onto multiple blockchains and ecosystems.”
 
“The Kitco gold partnership brings together a consortium with more than 40 years of legacy history of sourcing, trading and protecting metal and digital assets. This truly-backed gold asset will allow institutional traders to have complete trust in a verified process of gold-value attainment and we look forward to collaborating with the teams to make it a reality,” said Vincent Chok, CEO of First Digital Trust. 
“Trust and verification are hallmarks of a well-functioning market. We are pleased to be applying best practices from other asset markets to make gold as an investment asset more secure, accessible, and cost-efficient,” says Michael Albanese, CEO of Tradewind Markets.

Each token represents one true troy ounce of fine gold. Ownership records for the underlying gold are managed on the Tradewind ledger, an institutional-grade platform that facilitates the trading and management of precious metal commodities. The safe-haven asset will be secured and protected by First Digital Trust, Hong Kong’s only qualified multi-asset custodian, holding both traditional and digital assets.
 
Stably, a public blockchain smart contract provider connecting real-world assets to existing and emerging blockchain ecosystems will enable the asset to become available for purchasing and trading to investors. 
 
“Stably is very pleased that our tokenisation engine is enabling Kitco to bridge precious metals from traditional finance (TradFi) to decentralised finance (DeFi) ecosystems. As the world’s largest precious metal website, Kitco shall benefit immensely from access to these new digital distribution channels,” adds Kory Hoang CEO of Stably Corporation.
 

Blockchain platform Lohko has teamed up with London-based tech firm Mattereum to launch a new ownership model of physical goods that will enable verifiable gold non-fungible tokens (NFTs) to be traded on the blockchain and attached to carbon offsets. 

Blockchain platform Lohko has teamed up with London-based tech firm Mattereum to launch a new ownership model of physical goods that will enable verifiable gold non-fungible tokens (NFTs) to be traded on the blockchain and attached to carbon offsets. 

Using the Lohko Wallet, a digital wallet that secures blockchain-based financial assets, investors can now for the first time safely hold, buy, sell or transfer ownership of physical gold bars rather than just owning an IOU. Mattereum’s Asset Passports bind each individually numbered gold bar to an NFT with legally enforceable smart contracts publicly available on the blockchain.

This new ownership model pioneered by Lohko and Mattereum offers a lens into the sustainable and equitable virtual economy of the future. Verifiable digital identities, authentication and provenance of each gold bar creates transparent inventory information, allowing owners to see whether their assets meet ethical environmental and social standards and automatically invest in carbon-offsets.

“Gold’s main limitation as an investment category has been that its ownership is difficult to transfer,” says Dr Antti Saarnio, Lohko’s CEO. “Typically gold buyers don’t have access to secondary markets – NFT gold in blockchain does not have this limitation. NFT gold owners are able to sell their gold anywhere and to anyone in any blockchain marketplace. This is a huge benefit for gold investors providing them better liquidity and higher sales margin.”

Vinay Gupta, founder and CEO of Mattereum, says: “Once you can do gold, the world’s most ancient asset class, you can do anything. Putting gold on the blockchain in a way which provides such excellent protections for the rights of bar owners, across a wide range of possible scenarios, has taken immense effort and will be a real gamechanger. We hope you will feel able to trust the product of our collaboration completely.”

Verifiable gold NFTs will also enable artists to bind premium editions of their digital work to physical gold, collectors to buy and sell securely across marketplaces, and investors to have direct digital-physical ownership. The gold bars held in Lohko Wallets are stored in secure vaults maintained by a Singapore-based gold exchange.

The Mattereum Asset Passport is a third-party verified digital identity for physical assets, stored on the blockchain. They can be assigned to a diverse range of asset classes including fine art, collectibles, luxury goods, aviation parts, consumer electronics, and many more.

The Mattereum Asset Passport bundles legal and digital agreements which denote true ownership of an object while providing secure digital provenance, certificates of authenticity, insurance frameworks, and dispute resolution. These smart legal agreements are cryptographically signed and secured on-chain and stored in distributed storage networks such as IPFS.

Gold NFTs are a new type of non-fungible token for physical assets, or digital twins, that are blockchain tokens denoting digital ownership of a tangible good stored on an immutable ledger.

Did you like this article? We’re holding an online digital assets summit on 10 June. Click here to claim your place…

PosGo Syariah is the first Islamic mobile ecosystem business in Indonesia, as supported by the Shariah Supervisory Board formed by the National Shariah Council. With full backing from the Government, the Shariah-compliant platform enables Indonesia’s predominantly Islamic population to manage their wealth, trade, save and transact in the debt and interest-free gold bullion via mobile device.
 
The nationwide reach of government-run postal service, PT Pos, opens up the Shariah-compliant, economic stability of physical gold to the entire population of Indonesia, including unbanked and underbanked communities. As the largest non-bank institution in Indonesia, PT Pos is positioned to offer the Indonesian population financial access through 24,000 physical service locations across the country.  
 
Through integrating the Kinesis technology and monetary system, the PosGO Syariah app provides Indonesian citizens with ‘PosGold”, a digitalised physical gold trading platform and ‘Switch’ for real-time peer-to-peer transfers of both gold and fiat balances. The platform also offers ‘Pos Pay’ a payment gateway and E-Wallet service and ‘Gold To Mecca’ a gold-based community savings program for Hajj and Umrah pilgrimage trips. 
 
This partnership between PT Pos, Kinesis, ABX, ICDX and PT Bullion Ecosystem International is one of the largest public-private partnerships in economic history.

The platform is live and being rolled out firstly to PT POS’s 45,000 employees. In subsequent months, the platform will be rolled out nationwide across Indonesia.
 
Key representatives, including the President Director of PT POS and top government officials, will present the mobile application along with the vision for Indonesian financial services at a press conference on 21 May 2021. 

PT POS Corporate Spokesman says: “PosGo Syariah is a large ecosystem that integrates many parties to be able to actively conduct trade, business, service, utility, financial transactions as well as an ecosystem that integrates the supervisory work processes of all regulatory agencies in Indonesia with the aim of improving the quality of protection for the community as consumers and forming a systematic solution ecosystem for a better community life.”

Thomas Coughlin, Chief Executive Officer of Kinesis, says: “This a pivotal moment in the Kinesis journey. We are proud to be working with the Indonesian national government and all the partners involved in this momentous project. People are increasingly moving away from traditional currencies and I am humbled to present Kinesis as a robust and scalable solution for digitalised and mobilised gold as a currency. 

“Crucially, this project shows just how the Kinesis technology can be applied in the real world at a national level. Through public private partnerships, which are a core part of our DNA and driver for innovation, we will continue to work with nations across the world to deliver viable solutions for the transformation of an outdated monetary system.”

Javier Sáenz de Cenzano heads up Spanish boutique Azvalor Asset Management’s Managers fund. This fund puts its money behind managers, such as Mittleman Brothers and Moerus Capital Management, who share Azvalor’s contrarian outlook on investment. 

Sáenz de Cenzano focuses on the long-term value investing strategy, looking for businesses with strong fundamentals but low market valuations. Despite a decade’s underperformance, he says this strategy always pays off for those investors that can stick with it. Institutional Asset Manager spoke to Sáenz de Cenzano to find out more.

Why has the value investing strategy underperformed in recent years?

The first quarter of 2020 was the worst quarter for value stocks ever, looking at historical data from AQR since 1926. This came on top of a decade of value stocks underperforming the market, making the difference in valuation between expensive and cheap companies reach historical extremes. We were close to the 100th percentile on all valuation spread metrics like price/sales, price/earnings or price/book. The last time we had a similarly bad quarter for value stocks was in the late 1990s, around the end of the tech bubble, and we all know how that ended for super-popular stocks trading at extremely high valuations.

There is an eternal temptation among many investors to justify high prices with narratives about paradigm shifts, something that has cost them dearly several times throughout history. 

In the 1970s, many (fabulous!) companies (the popular nifty-fifty companies) lost 75 per cent of their value, even though many continued to be fabulous 50 years later. The same thing happened with the Japanese miracle, which seemed infallible after the extraordinary returns of the 1980s, and which culminated with the Japanese Nikkei index hitting a record high of almost 40.000 points in 1989. Today, 30 years down the line, the index is still at half of that pinnacle.

In the late 1990s, technology companies seemed unassailable after generating returns similar to those of their current cousins. Cisco was perhaps the best example of that bubble when, after multiplying by 50 times in 10 years, it peaked at over USD 70/share only to tumble and lose 90 per cent of its value in the next year and a half. Cisco continues to be a great company today. 

In our view, what is happening now is not very different from what has happened before. There was always an argument to overvalue the “popular” asset classes, and it always ended in total disaster for the shareholders of these assets. Perhaps it is different this time. We strongly believe it isn’t.

What types of stocks are particularly undervalued today? 

We tend to avoid the most crowded and popular areas of the market, to focus on those segments that have little following and where valuation dislocations abound. We are long-term contrarian investors, and we conduct deep research in companies with a mindset of being minority owners of a particular business.

Through this approach, we have been investing for instance in gold-related stocks for a number of years now. We identified a huge opportunity in this space, where the world’s best-in-class companies were trading at ridiculously low prices, which provided us with a good margin of safety and very interesting upside potential. The opportunity was in line with our approach of “heads we win, tails we don’t lose much”. The market by and large ignored this opportunity for a number of years, but all of a sudden investors started paying attention, including the likes of David Einhorn or Warren Buffett entering the space recently. 

Other areas where we see significant value are in specific companies in the oil, copper and uranium sectors, where the market dynamics are very favourable for long-term investors, and where some companies are trading at very interesting levels. All these areas have been totally ignored by the market in recent years, which has created a great opportunity from a return potential angle, while protecting our investors from very real risks such as inflation or technological disruption, amongst others. 

In our search for portfolio managers on our Azvalor Managers fund, we follow hundreds of professional portfolio managers across the world, and we noticed that many that were in the past very conscious about valuations have now capitulated and have become less valuation-aware and more focused on future growth. 

The underperformance of the value factor has been more extreme and more long-lasting than ever, and it has been very challenging for many managers to stick to their valuation process – it has required a distinctive temperament and long-term perspective that very few have been able to maintain. 

Historically, changing an investment process in the middle of the game has been a recipe for disaster, while sticking to a proven and robust process tends to reward long-term patient investors.

When do you see this valuation gap between growth and value stocks closing? 

We think no one can determine when the gap will close, but we do know we are now at an extreme moment. Valuation divergence between expensive and cheap stocks has never been greater.

History has taught us that extremes don’t last forever and always end up reverting to the mean. We believe that value investing will make a comeback, which may be violent, like in 1929, the 1970s or the late 1990s. This will mean a very favourable tailwind for value portfolios, and there are reasons to think that a trend is beginning in this direction. 

However, it is more relevant for our investments to get the “what” right than the “when”. And everything seems to suggest that the investment alternatives in bonds, liquidity or the most popular stocks carry an unbearable risk for us today due to their high starting price. Our portfolio, with its level of undervaluation, and the long-term earnings prospects of the companies that comprise it, seems to us like an excellent long-term buying opportunity.

How long is too long to wait for a return on an investment?  

From a valuation perspective, cheap stocks have never been cheaper, and historically when you invested in the right companies at these prices, the long-term rewards were material. We firmly believe this time will not be different in the stocks we own. Being a contrarian investor requires a long-time horizon, since under the radar stocks sometimes do nothing for a very long time, but then suddenly realise their potential in an abrupt manner.

Moreover, as the companies in our portfolios generate by and large very strong and recurring cashflows, the passage of time goes in our favour as one gets the benefit of a high free cashflow yield via dividends, share buybacks, debt reduction, or other accretive capital allocation decisions made by top-quality company management. In other words, in a low-yield global environment, we can benefit from a recurring and strong free cashflow stream while we wait for the market to recognise a given company’s intrinsic value.

Funds focused on gold mining equities have flourished thanks to a buoyant gold price reaching all-time highs over USD2,000 per ounce and boosting net asset values.

Gold has rallied 31 per cent year-to-date, with investors seeking out ‘safe-haven’ assets as global markets face volatility and uncertainty as a result of the coronavirus pandemic. At the same time, gold mining equities have outpaced the commodity by gaining 47.7 per cent.

Evy Hambro manages the BlackRock Gold and General Fund and the BGF World Gold Fund, which both ranked among the top three for best fund performance across all sectors in July. The two funds delivered returns of 10 and 12 per cent respectively during the month, according to data provider Morningstar. 

“It is no surprise to us to see gold at new highs, given the almost zero rate environment and strongly negative real rates around the world. In addition, governments seem set to stimulate growth by spending, which will further debase paper currencies and this has always been supportive for gold,” says Hambro.

Low interest rates across the world are likely to persist, notes Hambro, supporting the gold price. With the US 10-year Treasury real rate now at -1 per cent, he says the “opportunity cost of holding gold is significantly reduced”.

Aside from the physical commodity, gold equities have been particularly strong performers because gold prices are rising while the companies’ costs stay flat, suggesting a positive outlook for earnings. Miners including AngloGold and Centamin have hiked dividends, at a time when expected earnings and dividends are seeing large cuts in most other sectors.

Sprott Gold Equity Fund has posted runaway returns of 43 per cent this year. Paul Wong, market strategist at Sprott, says: “Gold has staged a breakout in a spectacular manner driven by plunging real yields, and now with the USD topping out. Deep negative real yields and a falling USD are potent drivers for gold.”

He explains: “All these factors are related, and all are likely to continue. The current fiscal relief bill will have a USD1 trillion floor, and more future relief spending is expected and sizeable fiscal stimulus programs will continue. Extreme accommodative monetary policy is here to stay indefinitely, even if conditions improve. The USD has just started a major down leg. All the arguments we have made for being bullish on precious metals over the past year remain in place and have only accelerated or magnified.” 

Wong predicts these factors will lead to a “multi-year bull market” for the commodity. 

“We see strong arguments for adding to gold and gold equities for diversification given equity markets have bounced back strongly and the full economic impact of the Covid-19 crisis remains unclear,” says Blackrock’s Hambro.

Investment trust Golden Prospect Precious Metals, which focuses on the smaller gold miners and developers in their fund, has doubled its share price so far this year. 

Its co-founder, Robert Crayfourd notes that while large cap miners are mostly trading at a fair equity valuation at spot gold, there’s further opportunity for smaller developers since they still trade at a big discount when the current gold price is taken into account. He says that opportunity is there for either a “valuation catchup” or for them to be taken out with M&A deals by the largest companies, which have underexplored for years.

Specialist commodities ETF provider WisdomTree sees even further rises for the price of physical gold, predicting the price could reach a price of USD2,640 by next July, providing even more upside for gold funds. 

“When you’ve got negative real yields on treasuries, gold is far superior because it’s got zero yield. Zero is better than negative,” explains commodities strategist Nitesh Shah at WisdomTree.

Shah says traditional balanced bonds-and-equities fund managers could benefit from having a sizeable allocation towards gold, as high as 30 per cent of the portfolio, based on historical simulations carried out by WisdomTree. 

While most of the gold price’s current drivers are related to recessionary economic forces, Shah says that gold has “asymmetric qualities” that make it an all-weather allocation. “Yes, it performs fantastically well when the whole world’s going to pot – we saw that in the first quarter of this year with the big equity market crashes, and at that point, one of the only assets producing positive performance was gold.” 

Gold won’t do as well under an economic recovery, says Shah, but gold is also a good hedge against inflation, which typically happens in environments of economic growth. 

“I think many people right now are really eager to participate in a cyclical recovery by buying assets like equities, oil, and industrial metals, all the cyclical assets, but knowing all the risks around it, they like to hedge themselves,” says Shah.

Golden Prospect’s Crayfourd says gold has been unfashionable with generalist managers for the last few years as the bear market has taken hold, but may now be reconsidering their allocations: “I think we’re in a different environment now. The ‘insurance policy’ of holding gold has not paid out fully for a number of years for many of these generalists, and so I think that the effective size that they have held in their funds has whittled down over time. Now what we’re seeing is that it is starting to pay out, and lots of investors are saying ‘We’ve got gold hitting record highs, but I’ve kind of missed this run’.”