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Digital Gold Trading, Pros & Cons


Despite the fact that gold is no longer used as currency, it can still be used to make money. According to one quotation, gold was the wealth of kingdoms and the symbol of rulers, and it was desired by many but owned by few. For a variety of reasons, gold is popular among investors, and it offers properties that make it a viable alternative to traditional securities such as shares and bonds. During difficult economic times or global crises, such as those involving Russia and Ukraine, investors usually look to gold as a safe haven. This article briefly describes digital gold and how it can be exchanged globally. Furthermore, the paper discusses the advantages and disadvantages of digital gold and its trading.

Digital Gold

Digital gold can be purchased online and stored in insured vaults on behalf of the consumer by the vendor. Simply defined, digital gold is a type of actual gold investment. Trading in digital gold is quite similar to trading stocks online with a stock exchange broker. It involves Internet/mobile banking, and one can invest in gold digitally at any time and from any location. When a unit of digital gold is purchased or sold, it is either debited or credited from the account. In general, units of digital gold are deliverable in the same way that commodities are delivered in online trading.

When investing in digital gold, unlike the old traditional technique of purchasing physical gold, the purity of the gold is no longer an issue. The security is excellent and free of robbery and theft because it is held in a dematerialization account /Demat account (allows investors to hold shares and securities in an electronic format) and cannot be traded by anyone other than the investor. Digital gold is easily traded and convertible into physical gold. For each gold unit purchased, investors must pay transaction fees, storage costs, and insurance charges.

Digital gold and E-gold concept

(1) The concept of digital gold is analogous to the concept of "e-gold - the first Digital Gold Currency (DGC)," a digital gold currency issued and managed by a private company on the basis of physical reserves of gold and silver, producing an electronic form of money for investment and trading. The e-gold project began in 1996 and failed in 2013. Due to a shaky network and inadequate KYC (know your customer), "e-gold" was unable to combat attacks from financial malware/phishing, making it a source of unlawful activities, investment scams, and frauds. The new approach would allow actual gold to be transferred as readily as digital currency, while also providing buyers with information about where the gold came from. Nowadays, the terms e-gold and digital gold both refer to a sort of virtual gold investment.

(2) Firms dealing in digital gold generally offer physical gold delivery; however, some of them act as custodians for their clients on behalf of gold mining/refining companies. Aside from Indian organizations involved in the digital gold market, The Royal Mint, UK, and APMEX (American Precious Metals Exchange) can also be referred to for e-gold commerce.

(3) According to business news published by TradeArabia.com (Manama, Bahrain) on June 23, 2020, IBMC Financial Professionals Group, an internationally recognized financial services institution and business consultants have collaborated with US Gold Currency and Block-fills to bring the world's first monetary gold-backed digital gold currency to the Gulf Cooperation Council (GCC), Middle East, and Africa. According to a statement, the money would also be implemented in India at the same time.

Impact of the digital world

I) With the advent of the digital age, digital gold is replacing physical gold as an investment vehicle, particularly in India, the world's largest importer of gold. Digital gold can be purchased online without concern for purity or theft, and it can be safely held in an insured vault given by the company to its customers. The holding, i.e. units of gold in the vault, can be sold or physically delivered at the doorstep for a fee.

II) People are shifting their money away from fixed deposits and toward digital gold as interest rates on fixed deposits fall. Among others, the following are two well-known platforms that provide "e-gold" services to their users/clients:
  • Google Pay - This platform allows its users to purchase pure 24 K gold.
  • Amazon Pay – a company situated in the United States that was founded in 1994. A user can exchange gold through his/her gold vault after installing Amazon App and logging in.

Demerits of Digital Gold/E-gold

Purchasing gold can have various advantages in the right conditions. Digital gold is a modernized method of purchasing gold via online channels. It is a more easy and cost-effective option for people looking to purchase gold. However, digital gold, like any other commodities investment, has pitfalls, such as:
  1. Most people considered digital gold just as a paper certification of gold ownership.
  2. A digital gold currency (DGC) carries risk because it is electronic money provided and maintained by private businesses. Digital currencies are difficult to utilize since they are not widely recognized.
  3. Aside from tax considerations, there is a limit to the amount of gold investment that can be ordered for physical delivery.
  4. When purchasing digital gold, bear in mind that if you are only looking for virtual gold, digital gold is the best option. It is not a wise decision to buy digital gold and then seek physical delivery.
Although gold performs well on occasion, it is not always evident when or how to buy it. Because gold does not produce profitability on its own, determining when it is a smart buy can be difficult. However, with stocks, there are more visible signals based on the company's results. When investors anticipate economic concerns, they frequently retreat to gold, making it a protective investment. You may easily convert certain types of gold-based assets to cash if you buy them.

Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Contents of this article do not constitute investment advice and should not be taken as such.

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