Digital gold as a defensive asset

7 min readDec 3, 2020

In early 2020, financial markets were in deep fever, and asset prices were hit by increased volatility. The reason is the Corovaminus that has swept the whole world. Gold suffered no less than other assets. The spot rate of the precious metal dropped by 15% in one week in March. Experts began to question whether the yellow metal has lost its role as a diversification tool and its status as a defensive asset.

Is gold still a defensive asset?

At first glance, the serious volatility of this precious metal at the beginning of the Corova can be compared with the events of the 2008 global financial hard times. However, the reasons for this behavior are different. There are many factors that affect the price of gold, and the function of each of them has its own specifics. The significant volatility of the yellow metal this year was not caused by traditional geopolitical factors, supply and demand conditions. This circumstance can be explained by a sharp cessation / suspension of economic activity around the world and the macroeconomic policy pursued by the authorities in order to minimize the negative impact of the Corova on the world economy.

Gold appears to have temporarily lost its defensive status in mid-March. Its exchange rate declined due to the combined impact of a number of factors, including 1) the collapse of the global stock market, 2) synchronized dynamics of prices for gold and other commodity assets, 3) the strengthening of the role of the American currency, and 4) the collapse of the oil rate.

In the long term, the yellow metal is still a popular defensive asset. It will continue to function as a portfolio diversification tool, given the massive and unprecedented monetary and fiscal stimulus that central banks and governments around the world are taking to mitigate the economic damage caused by the virus.

Reasons for the increased volatility of the gold rate

At the end of March, an ounce of the yellow metal fell to $ 1,450, up 14.7% from $ 1702, the high of the first quarter. The rally resumed quickly after the fall. The gold rate reached $ 1,689 per ounce on April 10, and by the end of June it was already at $ 1,786 per ounce. In the first half of 2020, the precious metal managed to grow to an eight-year high, having risen in price by 17% year on year.

What caused the strong exchange rate volatility?

1. The fall in quotations of financial assets in the USA and Europe due to the Corova

Since the start of the Corova, the cumulative number of confirmed cases worldwide has exceeded 29.3 million (as of September 14). In most countries, authorities have introduced quarantines to deal with the effects of the health hard times, leading to a temporary economic blockade around the world and worsening medium and long-term economic forecasts.

As you know, human capital is the most dynamic factor in productivity growth. In conditions of threat to human life, other values fade into the background. It is therefore not surprising that when the Corova threatened the existence of human capital, it caused serious damage to the real economy. We are talking about the suspension of the activities of enterprises, the reduction of market capacity, the cessation of economic activity in the field of transport, hotel business, catering, wholesale trade, entertainment, culture and sports.

The hard times in the real economy had a negative impact on the financial market as a whole, increasing volatility in the markets for gold, commodities, bonds and stocks. Subsequently, it fell victim to financial institutions, namely asset management companies, insurance companies and banks. The colossal damage to the real economy due to the Corova has increased systemic risks in the global financial markets. This, in turn, created the conditions for more acute and large-scale consequences for the world than the “bubbles” of financial crises of the past. In March, developed countries were hit hard by the Corova, and then the rest of the world. There are fears about an economic recession and a liquidity shortage. As a consequence, on March 16, the volatility index (VIX) rose to an all-time high of 82.69 points.

During the same period, the stock market fuses were triggered four times in the US stock market — on March 9, 12, 16, and 18. The Fed responded by rapidly cutting interest rates to zero, implementing a new $ 700 billion QE program, and resorting to a combination of tools to inject liquidity directly into the hands of consumers, businesses, funds and banks. This became possible through the use of the following mechanisms: financing of salaries, lending to primary dealers, ensuring the liquidity of mutual funds, “unlimited” buying of bonds in the context of quantitative easing, creating corporate lending mechanisms in the primary and secondary markets, etc. Despite all these initiatives, the US stock market suffered from severe fluctuations, which was additional evidence of fear and liquidity shortages. Some investors had to sell liquid assets like gold to cover losses and meet margin requirements.

Therefore, the precious metal market lost its investments. To make matters worse, the coronavirus has created liquidity shortages in financial markets, driving down the value of entire asset classes, including stocks, oil, gold and bonds. The growth in the level of uncertainty and risks, along with a decrease in the share of borrowed funds, only exacerbated this situation. Even gold turned out to be uninsured against this general sell-off, temporarily losing its defensive asset status amid financial turmoil.

Blockchain?

The concept of “blockchain” has been actively discussed with the growing popularity of cryptocurrency. This technology is believed to be a real breakthrough in finance and secure databases. Blockchain in simple words is a chain of blocks, each of which has a time stamp, a link to the previous block and is stored on different computers.

What is blockchain When studying the question of what a blockchain is (from the English Block Chain), first of all, they focus on such a feature that there is no single server in the system, the blockchain chains are distributed between users. The use of modern encryption algorithms makes it possible to protect individual records belonging to a particular person from copying / editing by other users of the system.

Digital Gold

The main inspiration for digital gold is the creation of an Ethereum-based ERC-20 token that customers can use to adequately buy, sell, exchange, store, or move hypothetical gold. These exercises can be performed safely and profitably while maintaining customer anonymity. It is important to remember that the ERC-20 GOLD token is backed by physical gold stored in the secure vault of the association. Since liquidity is guaranteed, the token is listed as a stablecoin as its value is honestly related to the current spot gold costs.

The GOLD digital token was expected to become a stablecoin pegged to gold. As for stablecoins, they are usually pegged to various assets or financial structures, but then backed up again. This suggests that the amount of coins invested in the spread is directly backed by the assets that are taken care of in the associative parts. Thus, client tokens are protected from the capriciousness of high functionality, however, the valuation of tokens remains stable over time. These edges apply to the GOLD token under its stablecoin status.

The Upgraded Gold Collection

is pleased to announce that the Base 7,200 GOLD Tokens have been duly imprinted with 7200 grams of gold or $ 309,168. The gold bars were purchased from BullionStar and are available for a one minute system check on the live BullionStar website. These tokens will be used to support liquidity and a game plan for assistants to flow further.

The GOLD collection teaches on how to send an energy business place for the tiniest difference in Bitcoin and Ethereum to GOLD and in another way. The business focus is mechanized, the exchange proportions are unlimited, and all applications are processed quickly, without cost coverage or manual support.

Blockchain technology is gradually being introduced into our lives

We see how all areas of life are applied and combined with this technology. The above is one of the projects to improve the efficiency of the blockchain. And I believe Stable Gold is the perfect project, meeting the need to store valuable assets and leveraging cutting edge technology.

Thanks to everyone who was interested in this article, you can also find information about the project and the latest updates on this project through the following communication channels.

Useful links:

Website — https://gold.storage/

Bitcointalk ANN — https://bitcointalk.org/index.php?topic=5161544.0

Get insight from the Whitepaper — https://gold.storage/wp.pdf

Twitter — https://twitter.com/gold_erc20

Medium — https://medium.com/@digitalgoldcoin

Reddit — https://www.reddit.com/r/golderc20/

Facebook — https://facebook.com/golderc20

Telegram Group — https://t.me/digitalgoldcoin

Writer’s Information

Bitcointalk username — TonyMontana777

Bitcointalk Profile Link — https://bitcointalk.org/index.php?action=profile;u=2169832