Gold, Silver, Blockchain and Fintech – Solutions To Negative Rates, Bail-ins, Cash Confiscations and Cashless Society

September 10, 2016

I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it…and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.

Source: Wikimedia Commons

As some of you may know, in a previous life I wrote a lot about gold and silver. I took the perspective of someone who was new and curious to the precious metals. I wanted to know more than just how the Fed announcements affected the prices, why demand and supply weren’t enough to predict movements - and why history didn’t seem to have taught us any lessons.

After three years I stepped away as, to be honest, I was bored. Not of gold and silver but of the narrative, which didn’t seem to be changing and keeping up-to-date with what was happening in other areas of investment and changes in the financial arena.

I spent the next two years broadening my knowledge base, working with startups in the trendy world of fintech and speaking to people about that buzzword ‘blockchain’.

I continued to speak at events about gold but it was refreshing (hopefully for the listeners as well) to provide a perspective that was looking past the push for the gold standard, the (potential) confiscation of gold and theories surrounding COMEX delivery.

Instead I was able to speak about how fintech and other applications of technology were educating both investors and banks about how money could best be managed to the advantage of the consumer, how blockchain is widening the scope for gold as money and how a push for a cashless society is good for gold.

After a couple of years away from writing I return to the space with the same level of curiosity about precious metals but with a wider perspective and perhaps one focused on other areas. It is this that I hope to bring to the GoldCore research pages.

Below I outline some of the areas that I look forward to covering over the coming weeks and months (and maybe years if all goes well!).

Bail-ins And Confiscation

Bail-ins is something that I think the British public (and EU citizens everywhere) have stuck their head in the sand about. Know this, they are very real and no-one’s money in a bank is without risk above a certain level.

When changes were made in January 2016 to the UK’s bail-in conditions and protected deposit amount it certainly was not well publicised, and few people realise that just by spreading your money across multiple banks may not mean you are any less at risk.

Bail-ins are the fiat equivalent of gold confiscation that has many gold fans worried.

We’ll be covering this in more detail in the coming fortnight, but the summary of it all is that diversification is key. And I don’t only mean diversifying your bank accounts, ISAs etc. I mean diversify your portfolio and include allocated and segregated gold and silver, assets that cannot be lifted thanks to EU regulations.

From a fintech perspective, the threat of bail-ins adds an extra level of interest as their appearance ties-in with the push for cashless society and negative interest rates.

Cashless Society And Those Negative Rates

With negative interest rates now making the front pages, it is no longer valid for gold naysayers to claim that a non-yielding asset such as gold and silver is a waste of time. So as it’s not particularly attractive to hold your wealth in cash anymore, how do banks incentivise you to do so? They decide that cashless payments are the future, i.e. the only way you can spend is directly from your account and not from the cash in your purse.

Bail-ins are one of the latest (and increasingly important) reasons why you need to be incentivised to keep your cash in the bank. As long as we have the ability to withdraw our cash from the bank to avoid being penalised in this negative interest rate environment then banks are limited in what they can do. However once your cash is in there, then it is ripe for a bail-in opportunity.

Going cashless is a big mission by banks, payment providers and governments. It is believed to be wholly beneficial, not only for time-poor, permanently connected Westerners but also for the poor and those in the third-world who are perhaps without the physical banking structure that we are all so familiar with.

For both parties I completely see the advantages. Already I feel a transaction is taking too long if I have to pay by chip and pin rather than contactless or Apple Pay. For Big Issue sellers in Sweden I like that I can pay by card and so the old ‘sorry mate, I haven’t any change’ is no longer an acceptable reason. And for refugees and those in the third world whose live may well exist online but have difficulty to prove their identity in a physical manner (passport, drivers licence, address) then I can see a huge benefit. They can be online, paying for items by phone and don’t have to worry about establishing themselves in the city or country in which they find themselves.

My issue is, however, with a completely cashless society. To me this echoes the same steps as telling you what is legal tender - i.e. why can’t I spend my gold in Starbucks? I’m not a big believer in scare-mongering, I don’t think that there is a ‘war’ on cash, but there is certainly a growing mentality in the city that the rise of payment apps is incredibly convenient whereas cash is big and bulky, insecure and the medium of choice for criminals.

This works to the advantage of cash-strapped banks, who may one day face a bail-in.

Again, I plan to look at the war on cash in far more detail, however it will come to the simple conclusion (yet again) of diversifying your portfolio. Why, if there is a risk that something may disappear/get damaged etc., would you not take out insurance? You would.. And so to protect yourself from the steps that are being made for a cashless society, where your every transaction will be recorded, and at risk of regulatory decision, I would suggest that you buy the most tangible and trusted, border less asset there is – gold.

Cyber Fraud At SWIFT – $81 Million Stolen From Central Bank REUTERS/Dado Ruvic/File Photo

How The Same Tech Will Help Gold And Silver
This makes me want to take a step back and make it clear that I believe there is a happy medium between the tech that is facilitating the cashless society and the gold market.

One of the huge benefits to come from the financial crisis (and yes, there were some) was the explosion of ‘fintech’. People who knew the financial industry well saw an opportunity to take advantage of the regulatory push to protect and educate consumers. They build apps, lending platforms, crowd-funding sites and more to reach the consumer directly rather than making everyone use banks for everything.

This in turn got the consumer to think about how they invest their money and how they don’t need to always use a bank. The most successful technology in all this is the blockchain.

Blockchain is the name of the technology that underlies bitcoin. Whilst bitcoin has been a phenomenal success (given its decentralised existence and lack of marketing focus) the blockchain is the true star, with the cryptocurrency merely the poster child.

The potential for the currently fragmented gold market when it comes to the blockchain is huge. And for those who one day hope to use their gold as money (and I mean in a very real and practical sense) then there is no longer a technical reason why this cannot happen.

This is something for more explanation, in the blogs to come. It might seem like I believe technology is the only way gold and silver will continue to do well, it isn’t.

But what I do see is that we are at a significant turning point where this is very little reason for gold not to become an accepted medium of exchange in the West, as well as a standard way to diversify your portfolio.

In turn, this can only be good for the gold and silver market and indeed their prices.

Seventy-five percent of all gold in circulation has been extracted since 1910