Why Gold Collateral Letters Become a Hidden Danger for 98% of Investors

The euphoria of gold purchases has driven the price of this precious metal up by more than 80% in the past 12 months, making it one of the best-performing assets this year. However, behind these enticing figures, there is a systemic risk that is often overlooked: the majority of gold investors actually do not own physical gold bars, but rather gold-backed certificates in the form of derivatives. According to Björn Schmidtke, CEO of Aurelion, the gap between estimated ownership and the reality of physical assets creates a potentially concerning market vulnerability.

Derivative Transactions: When Gold Certificates Replace Actual Bars

The simplest way for someone to access gold is through what is called “paper gold”—shares of funds traded on gold exchanges (ETFs) or similar instruments. When investors buy these shares, they assume they own physical gold bars. In reality, what they hold are gold-backed IOUs—written promises stating “We owe you gold.” As Schmidtke explains, this phenomenon results from a collective agreement where all parties agree that this piece of paper has value.

While this system successfully avoids the complexities of physical storage, the real problems begin here. Investors do not know which specific gold bars they own. There is no direct proof of ownership, only transaction records of ETF purchases. Schmidtke estimates that 98% of gold exposure is effectively in the form of gold certificates—debt instruments where investors hold paper worth billions of dollars that should be backed by gold, but they have no knowledge of its physical allocation.

This system has operated stably for decades because most investors rarely desire actual delivery. But a big question hangs: what will happen when this stability is disrupted?

When Crisis Strikes: Why Gold Certificates Could Turn into Empty Paper

Imagine a critical scenario: a catastrophic event causes fiat currency to depreciate exponentially. Investors simultaneously move to exchange their gold certificates for physical bars. This is a “seismic event” never before seen on a modern scale, and the existing system is unprepared for it.

The first challenge is logistics: “You can’t just move several billion dollars worth of physical gold in a single day,” says Schmidtke. The second, more fundamental challenge—without clear ownership documentation, how to prove that a particular investor owns a specific bar? How to distribute physical assets fairly and promptly when millions of claims compete?

In such a crisis, the phenomenon already seen in the silver market will repeat in gold: the price of physical gold will surge dramatically while the price of gold certificates lags, creating a market divergence that benefits certain parties and harms derivative holders. Debt instrument holders will be unable to settle their transactions at expected prices.

“The risk is real,” Schmidtke emphasizes. The silver market has proven it. Gold will follow the same pattern if the triggering conditions are not avoided.

Blockchain Solution: From Certificates to Decentralized Ownership

Imagine a hypothetical property scenario: a developer offers a unique way to buy a housing unit. Investors buy shares in the project, receiving IOUs promising delivery of the unit without signing a deed of ownership. When the unit is ready for pickup, there is no proof of who owns which unit, creating problematic administrative bottlenecks.

This is the situation faced by gold investors. The solution lies in decentralized gold ownership via blockchain. Schmidtke argues that tokenizing gold removes critical barriers in the traditional system. Unlike conventional gold certificates, each digital gold token is inseparably linked to a specific allocated bar stored in a particular vault (usually in Switzerland).

This digital “ownership deed” can be transferred globally within seconds on the blockchain, separating ownership from the physical movement of the metal. It creates total transparency: investors know exactly which bar they own, and the system can quickly resolve ownership claims and facilitate delivery to rightful owners.

Analogous to property: if investors sign a deed of ownership from the start, they know exactly which unit they will receive, and developers can quickly sort out documents and deliver the unit on time. On-chain gold ownership works on a similar principle—allocations can be searched and redeemed with full certainty.

XAUT: How Gold Tokens Are Changing the Ownership Model

Aurelion has integrated this strategy by switching to Tether Gold (XAUT), a blockchain-based token fully backed by physical gold stored in Swiss vaults. XAUT offers digital transaction speed without sacrificing physical settlement—unlike traditional gold certificates that are promises, this token represents allocated bars that can be fully exchanged.

Schmidtke emphasizes: “How you own gold is just as important as whether you own gold.” With XAUT, asset holders not only know they own gold but also which gold, where, and can exchange it at any time.

According to the latest data, Aurelion currently holds 33,318 XAUT tokens valued at around $153 million—with a token price per unit reaching $5.55 thousand. The company plans to raise additional capital to expand its digital gold reserves. This is not a short-term arbitrage strategy but a long-term commitment to building sustainable and observable gold ownership over time.

Aurelion’s strategy represents a new paradigm in asset ownership: blockchain transparency replacing traditional gold certificates, certainty of allocation replacing unmeasurable promises, and decentralized ownership transforming how investors interact with precious metals—not as uncertain gold certificate holders, but as asset owners with irrefutable digital proof.