Hidden Threat in the Gold Market: Order Bars and the Illusion of Physical Ownership

Did you know that the vast majority of gold investors actually do not own a physical gold bar? According to Björn Schmidtke, CEO of the Tether gold reserve company Aurelion, approximately 98% of gold exposure is actually represented through debt securities and paper-based instruments. While this may seem like a practical solution, it creates significant fragility in the market, and decentralized structures like order books are beginning to reveal this issue.

Over the past 12 months, gold prices have risen significantly, attracting the attention of precious metal investors. However, this strong demand has exposed a fundamental problem: most investors are investing in something quite different from what they believe they own.

Paper Gold Paradox: Ownership Without Possession

The concept of “paper gold” as defined by Schmidtke refers to fund shares traded on gold exchanges or gold derivatives. When an investor buys these instruments, they believe they own a physical bar. In reality, they are purchasing a debt security labeled “Gold to be received.” The entire system relies on this collective acceptance—its value is based on the belief that these documents are worth something.

The core issue with this system is that investors do not know which gold bars they actually own. After purchasing an ETF share, there are no tangible documents proving ownership or indicating that the investor can redeem the physical gold. Ownership records are maintained only in a centralized registry. According to Schmidtke’s estimates, about 98% of gold exposure is concentrated in unallocated, or “fuzzy,” IOUs—where the specific bars and owners are uncertain. This means billions of dollars’ worth of value is stored in documents with unclear ownership.

Currently, the system functions because investors rarely demand physical delivery. Since it has operated this way for decades, everyone believes the gold is truly there.

Market Shock Scenario: The Weakness of the Order Book System

But what if a catastrophic event occurs? For example, if the value of fiat currency suddenly collapses and people panic to claim their “physical gold”? Schmidtke calls this a “seismic event”—a systemic shock.

In such a crisis, the market mechanism could break down entirely. Investors would be unable to transport billions of dollars worth of physical gold in a single day. The advantage of decentralized structures like order books comes into play here: ownership becomes more transparent and traceable.

But within the current system, what problems would investors face if they demanded physical delivery? Where are the documents proving which gold bars belong to whom? Which logistics center would deliver these bars?

Schmidtke’s warning is based on past examples. Similar situations have occurred in the silver market, where physical premiums rose while spot prices remained stable. If such a “price disconnect” occurs, paper gold and physical gold could trade at completely different prices. Derivative holders might be unable to pay. Emergency services could be overwhelmed, and customer homes could be at risk.

Real Estate Analogy: Why Order Books Offer a Solution

Imagine a hypothetical scenario: a real estate developer offers investors a deal. If you buy 10 shares, you receive a debt security promising delivery of 10 units of housing. The developer makes the same promise to other investors. The entire transaction is completed through share purchases; no title deeds are signed.

What happens when the delivery time arrives? Since investors never signed a deed, there is no tangible proof of which units they own. Developers might try to deliver units randomly—creating chaos. Maybe everyone eventually gets their home, but it will take significant time, and no one has a guarantee of which unit belongs to them.

This is exactly the problem that Schmidtke’s blockchain-based gold token aims to solve. Tokenized gold like XAUT (Tether Gold) separates ownership from physical movement. Each XAUT token is linked to a specific, allocated gold bar stored in a Swiss vault. On the blockchain, the “title” to this gold can be distributed worldwide in seconds.

Returning to the real estate analogy, if investors had signed a deed from the start instead of shares, they would know exactly which units they own. The developer could quickly verify these deeds and deliver the units on time.

This is how on-chain gold tokens work. Allocations become searchable and retrievable. Physical delivery may still take time, but investors at least know their gold is secure and traceable with proof of ownership.

Secure Ownership: Aurelion’s Strategy

This philosophical foundation shapes Aurelion’s strategy. The company has fully backed its treasury with XUAT— a blockchain token supported by physical gold in Swiss vaults. According to current pricing data, each XAUT is valued at approximately $5.53 thousand, with a total circulating supply of 520,089 tokens, reaching a market cap of about $2.88 billion.

Schmidtke’s argument is simple but powerful: XUAT enables fast digital transactions without delivering physical gold. Unlike paper gold, tokens represent allocated bars and are fully redeemable. Every XUAT transaction is a decentralized, verifiable transfer of ownership on the blockchain.

“How you own gold is just as important as whether you own gold,” Schmidtke said. In his view, decentralized movements like order books and blockchain technology are critical to solving the ownership problem in the gold market.

Schmidtke notes that the adoption cycle for XUAT is still in its early stages and that there is room for scaling. Aurelion is not currently engaged in short-term arbitrage but is focused on creating a lasting Tether Gold share that investors can participate in over time. The company plans to raise more capital soon to expand its treasury.

Conclusion: The Future of Gold Investment

This transformation in the gold market requires investors to rethink their ownership structures. New structures like order books and on-chain gold offer a decentralized, verifiable ownership model. According to Schmidtke and players like Aurelion, the future of physical gold lies in blockchain—where ownership is transparent, fast, and traceable.