It may sound like risk-off overkill, but if you wanted to take a belt-and-suspenders approach to protecting some of your savings from inflation and the risk of collapsing financial markets, you might look for an asset that combines the historical acceptance of precious metals with blockchain ownership verification and maybe wrap it up in a stablecoin packaged by a company committed to ethical investing, just to be ridiculously safe.
MRHB.Network plans to offer Gold & Silver Standard (GSS) bullion tokens to investors around the world with a razor-thin 0.03% transaction fee. Each token is worth 1 gram of precious metal, and investors can buy in increments of 1/18. There’s no floor for the first week, so avid but timid gold investors can get their feet wet for as little as $3, based on the metal’s recent price of about $1,660 an ounce ($53 a gram). After that, there will be a $10 minimum purchase, still less than a quarter gram, as opposed to the 10 ounces that’s the smallest usual size for bullion and physical coins.
The tokens represent physical metals held in a vault by GSS, a unit of Ainslee Bullion Group, in Melbourne, Australia, and they are stablecoins by definition, since they are linked to specific amounts of gold and silver. They differ from most major stablecoins, which are usually tied to the U.S. dollar. The minute initial investment and scant fee make a small allocation to gold accessible to retail investors. U.S.-listed exchange-traded precious-metals funds, a generally inexpensive investing method, have management fees running from about 15 to 40 basis points.
GSS already sells the tokens, Gold Standard (AUS) and Silver Standard (AGS), in Australia. MHRB will list them on its TijarX, a decentralized exchange for physical commodities that is planned to launch imminently and will integrate with the company’s Sahal Wallet.
MHRB, based in Dubai, offers investments that comply with Islamic Sharia law, which has a well-known prohibition against charging interest. Other elements can also come into play for decentralized finance (DeFi), says CEO Naquib Mohammed, who started MHRB because he could not find appropriate investments for himself.
“I founded the company because I could not find any suitable–halal–investments in the DeFi Ecosystem for myself,” Mohammed tells Forbes. “I started developing conversations with like-minded individuals and realized that there was a gap in the space for solutions and protocols that were consistent with ethical and faith-based principles.”The Sharia rules generally protect investors from unscrupulous financial practices involving unverifiable or undeliverable promises. The Sahal Wallet screens out tokens and protocols that include interest-based returns or links to gambling, pornography and other activities deemed unethical.
MRHB says the Islamic market offers 1.8 billion potential investors with $3 trillion of assets, and its restrictions on what is permissible—or halal—should sit well with socially conscious and risk-averse asset holders, regardless of religion.
But just because you can buy a low-cost, blockchain-based gold investment in a stablecoin wrapper that passes an ethics screen, does that mean you should?
The traditional allure of precious-metals investments is as a hedge against inflation, which is to say protection from the devaluation of government-issued—or fiat, as crypto investors love to call them—currencies. In this regard, metals are not having a banner year. While U.S. consumer prices were up 6.2% through August, gold was down almost 5%, to $1,716 an ounce, and the metal has slid $56 since, bringing its 2022 decline to 8.1%. Silver has lost 12.5% for the year. Cryptocurrencies that are not stablecoins are having an even worse time, with bitcoin off 59% for the first nine months of 2022.
If precious metals are not going to do well during times of high inflation, another scenario that holds hope for outperformance would be as a hedge against societal upheaval. Here the news is both good and bad. Unlike precious-metals investments based on futures contracts or other derivatives, the tokens are 100% backed by bullion that is linked to specific coins on the Ethereum blockchain. So if you can trust the half-century-old Ainslee and Australia’s government, there’s a good chance the physical bullion will be there for you in troubled times.
There is even a delivery option, but one that probably wouldn’t do much good during an apocalypse, says Khalid Howladar, chairman of MRHB’s advisory board, Transportation costs are the investor’s responsibility, and even if parcel-delivery companies are doing business in a Mad Max world, gold has to clear customs, a complex enough proposition in peaceful times. Physical metals are always a tricky investment because of their weight, security concerns and the potential necessity of verifying purity.
The MHRB executives are cognizant of the irony in launching precious-metal crypto vehicles at this juncture, but they take a long view.
“The reason why gold is underperforming is because, as you probably know, everybody has borrowed money for the last 10 years at super-low interest rates,” says Howladar, formerly head of Islamic finance at Moody’s Investors Service, “and stocks, equities, everything’s going through the roof. And now that we’re in a deleveraging situation, the one that you tend to sell is the one that’s been impacted the least.”
Another factor that could be weighing on gold is rising interest rates, which increase the attraction of short-term interest rates while making financed metals more expensive to hold.
Meanwhile, the dollar is rising against other traditional–or fiat, as crypto aficionados love to call them–currencies, reflecting the U.S. position as the strongest major industrial economy. Though the greenback—up around 17% against the euro this year and 26% compared with. the yen—has been generally gaining since 2011, the “recent sharp rise reflects its relative safe-haven strength versus other fiat currencies,” Howladar states.
The dollar benefited from “a stronger U.S. economy pumped up by inflationary monetary and fiscal stimulus–especially during the pandemic–followed by aggressive interest-rate increases, which make holding the dollar more attractive. However, with this much money printing and systemic leverage, a reckoning is coming.”
It should be noted that gold has proven a more effective hedge against deterioration in other currencies. It is up 6.62% against the euro and 14.97% versus the yen this year, according to data compiled by the World Gold Council, but broad commodity baskets have produced gains in the 30-40% range. International investors who opted for precious metals would have done better to just put their money in interest-bearing dollar savings accounts.
Howladar says he thinks the greenback will get its comeuppance when the recently industrialized BRIC countries–Brazil, Russia, India and China–start to issue commodity-backed central bank stablecoins, most likely in gold.
“These would offer an alternative and a creditable store of value.”For now, “all the other fiat-Ponzi schemes are collapsing into the dollar because the dollar is the strongest fiat-Ponzi-scheme,” according to Howladar.
If hard-asset stablecoins come along to unseat the greenback, he says gold and bitcoin will become attractive alternatives in a risk-off world that stops short of a zombie apocalypse.