As the downtrend of gold has been exacerbated by the recession caused by the coronavirus, tokens backed by gold continue to rise in price.
The demand for Paxus Gold (PAXG) and Tetra Gold (XAUT), two of the most liquid gold-backed tokens, has increased this week, according to CoinDask. Both of these tokens based on the Blockchain represent one ounce of gold stored in their holdings and both have the ability to convert to physical gold.
Traditional gold suppliers are reportedly facing a shortage of difficulty in bringing physical bullion into the market, increasing demand for these tokens.
Roy Sebag, founder of Goldmoney, a metal trust company, said in an interview with the Federal Reserve:
The Federal Reserve has completely changed the rules. The real interest rate is even higher, and we see that all the money is flowing into gold immediately.
According to Paxos spokesman Becky McClain, the purchase of the digital currency has almost doubled every day since Monday. The agency said Thursday it has enough gold to cover current trading volume. Each Paxos is equivalent to one ounce of official gold at the London Bullion Market Association (LBMA).
On the other hand, according to data released by Nomics, demand for Tet Gold led to a $ 4 million market value on Wednesday. According to a report released by The Block, supply chain issues in supplying gold can be a barrier to generating more tokens.
Tether said in a statement:
Tet Gold has provided its users with a simple way that is technologically very innovative. Users can keep gold for free without paying annual fees.
The statement said without referring to daily market movements:
We have seen very good growth in XAUT and expect the digital currency to continue its growing trend to consolidate itself as the dominant gold-backed digital token.
The volume of both tokens has increased in recent days, according to data from Namix and Kevin Market Capital.
Walter Hessert, CEO of Paxos, said:
We’ve all seen unprecedented volatility in markets over the past few weeks, so naturally people are looking for safe havens like gold. As a token based on China’s blockchain technology, it offers holders the highest level of control and access outside the economic system.
Coinciding with rising demand for gold physically, with precious metal supply chain issues pushing up the price of gold per ounce.
Earlier this week, Bloomberg News reported that with the outbreak of the Coronavirus and the subsequent inability to set up physical contracts in New York City, the futures of gold futures were higher than the price of gold premiums, a feat unprecedented for forty years. The premium cost is the percentage added by the seller to the intrinsic value of gold.
Premium fees are currently considered for traditional gold-backed tokens in cash and futures markets such as FTX. However, the reason for current prices could be the continued premium for gold-backed currencies that were previously received.
In fact, both PAXG and XAUT have always been above the gold price since launch. XAUT was launched in January 2020 and PAXG in September 2019.
Sebag believe traders are still looking for different shapes and types of gold, but they are getting harder and harder to find. He said:
Something has changed in the past few days. This change is not a lack of physical gold, but a lack of different forms of gold.
Paxos believes that the increased demand for PAXG will not lead to the supply constraints reported by Tetra. McClain says:
We only deal with gold in the London Bullion Market Association, and there are many other precious metals out there. We are a trusted and regulated actor and one of the benefits of this feature is that unlike others, we can access this market.