New Developments on Blockchain Gold

Monday, August 14, 2017

In the past several months, we’ve kept a close eye on a new partnership between the U.K.’s Royal Mint and the Chicago Mercantile Exchange (CME Group) to bring to market the RMG, “physical gold, digitally traded and underwritten to a blockchain ledger.” As we’ve reported, the RMG could allow individual investors to own and trade gold with far greater efficiency than is currently the case. Now, the organizations behind the RMG have relaunched their website, and we have learned a good deal more about the product being planned.

First, the newly provided RMG Factsheet has illuminated many key differences between owning and trading RMG (each RMG represents full ownership of one gram of physical gold bullion) versus currently offered products: gold exchange-traded funds and direct ownership of large 400oz gold bars. Highlights of the differences include the following:

  • RMGs carry no annual fees, unlike ETF management fees and storage fees for large gold bars
  • RMGs, like ownership of large gold bars, represent full physical ownership with no custodian in the middle
  • Like ETFs, RMGs will feature real-time pricing during exchange hours
  • Like ownership of large bars, but unlike ETFs, RMGs will be readily redeemable for physical gold

In many ways, the new RMG combines the most desirable features of gold ETFs and direct ownership of large gold bars, while also introducing the efficiency and security of blockchain technology.

We have also learned new practical details via the RMG site’s FAQ section:

  • The Royal Mint does not plan to sell RMGs directly to the public, but is developing relationships with investment intermediaries who will do so;
  • The Royal Mint and CME plan to launch the RMG to the public through these intermediaries in late 2017.
  • While individual traders' identities will be kept anonymous, the blockchain (or distributed record of trades and ownership of RMGs) will be publicly viewable, meaning “anyone may check that the total amount of RMG in issue is in line with the audited RMG vault holdings.”

These details point to RMGs as an exciting new way to own and trade physical gold. What is less certain is whether one day, technology similar to the RMG will generate a “golden Bitcoin,” a widely used currency backed by gold. Whether or not that becomes a reality, RMGs are certainly a first step, and a useful tool for investors interested in gold.

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Max Gulker, PhD

Max Gulker joined AIER in 2015. His primary research areas are applied microeconomics and industrial organization. Max previously worked as an economist for Keystone Strategy, supporting expert testimony for antitrust and intellectual property litigation in high tech industries. Prior to that, he worked on financial litigation matters with NERA Economic Consulting. Max holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Follow @maxgAIER.