Gold has been experiencing a sharp rise in the last few years, as it’s once again seen as an asset that’s used to hedge against inflation and disruptions. For a while now, markets have been affected by global geopolitical instability, and inflation is making every currency in the world less valuable.

As a result, gold seems to be a safe option.

Even more recently, a high-tech innovation was introduced to the gold market –tokenized gold. It too became a sought-after asset for investors. The shift shows how digital assets are changing the world of finance.

Gold’s Historic Run Toward $5,000

The bull market for gold stands out both when it comes to its scale and speed. Over the past year, gold prices have risen steadily, as investors seek an asset that serves as a hedge against the risks posed by political instability.
This was further expanded by central banks that have joined in to do the same. The trend is most noticeable in emerging markets. It has added a structural demand to the rally.

Traditionally, retail and institutional investors have accessed gold through physical bars and coins, as well as ETFs such as and iShares Gold Trust. However, there’s also interest in alternative and innovative ways to access gold. The demand has led to the creation of tokenized gold.

What Is Tokenized Gold?

Crypto tokens have been around for a while, and they are commonly used to represent value in the crypto asset ecosystem. For instance, XRP exchanges make it easier for crypto investors to buy and sell tokens online. Over time, the tokenization of real-world assets adopted the same blockchain principles for their buying and selling.

Tokenized gold refers to blockchain-based tokens that represent ownership of physical gold stored in secure vaults. Each token is backed by a specific amount of gold, most often measured in troy ounces.

The most popular options include: PAX Gold (PAXG) and Tether Gold (XAUt). Both of these allow the holders to exchange the tokens for real gold.

Tokenized gold can be traded 24/7 on crypto exchanges and used within decentralized finance applications.

Tokenized Gold vs. Gold ETFs: A Volume Comparison

One of the most interesting developments in tokenized gold is the volume at which it’s traded. Tokenized gold financial products are reporting daily trading volumes that are much higher than those of gold ETFs, except for the largest of those funds.

The difference lies in how these instruments trade. ETFs can only be traded on stock markets, and therefore only when those markets are open. Tokenized gold can be traded at any time across global crypto markets, and investors can easily move in and out of positions.

ETFs tend to see increased volume during major market events or during periods of high trading volume. Tokenized gold, on the other hand, benefits from its global nature and therefore enjoys constant price discovery. Their overall market size is still small, but it will grow as more investors discover the option.

Why Investors Are Flocking to Tokenized Gold

There are several reasons investors are interested in tokenized gold. The first one is because it’s a very accessible way to trade in gold. It allows for fractional ownership. Investors can hold small amounts of gold, unlike when buying physical gold.

Secondly, this trade is very official. Blockchain settlement reduces delays and can lower transaction costs. This happens since there are no intermediaries involved and therefore no fees to cover. The trade is also as transparent as it can be, since it relies on blockchain verification.

Finally, buying gold in this fashion is a way to hedge against uncertainty and inflation. Tumultuous times, such as the ones we live in, are considered the best for buying gold, as its value rarely changes.

Risks and Limitations to Consider

There are also risks inherent in this innovative trading approach. The most important of these comes from the fact that this trading practice is still not regulated. Blockchain-based tokens are new in themselves, while real asset tokens are an even more recent addition.

There’s also a liquidity risk. It can vary between different tokenized gold products, and not all tokens can be exchanged for physical gold. Additionally, while gold itself is relatively stable, tokenized versions can experience short-term volatility when other blockchain products experience the same problem.

To Sum Up

Tokenized gold is a new, innovative blockchain-based digital asset with value tied to gold. In recent years, there’s a growing interest in buying gold as a way to hedge against uncertainty. Tokenized gold allows owners to purchase fractions of a product and to sell it on a stock market at any time. Some of these tokens also allow the owners to exchange them for physical gold products.