The Real Risk Faced by Fixed Gold Investors: The Hidden Danger of Paper Gold

The gold market has been experiencing extraordinary volatility recently. Spot prices have surpassed $5,500 per ounce, and the one-day trading volume of this precious metal has reached approximately $1.6 trillion. However, behind these dazzling figures lies a deep structural problem that most investors are unaware of. As emphasized by Aurelion CEO Björn Schmidtke, 98% of gold exposure is actually packaged in the form of debt securities rather than physical assets. This situation poses serious risks to the futures gold market.

The Paper Gold Paradox in the Market

Many investors who want to buy gold find the easiest way to be purchasing “paper gold” or shares of gold exchange-traded funds (ETFs). According to Schmidtke, during this process, investors believe they actually own a physical gold bar, but in reality, they are buying a small paper that says “I Owe You Gold.”

Looking more closely at the problem reveals its severity. Investors who invest in unallocated IOU (I Owe You) instruments become owners of billions of dollars worth of paper assets, while having no idea what specific gold bars they actually own. There are no documents proving which bar they possess. Although the trading system has been functioning for decades, this ownership ambiguity is a potential trigger for a crisis.

Seismic Event Scenario: Liquidity Bottleneck

Now, imagine a disaster scenario. In the event of a collapse in the value of fiat currency, the public, suffering, tries to retrieve their physical gold they believe to be “paper gold.” This is where the system collapses. Moving several billion dollars worth of physical gold in a single day is impossible. When there is no proof of ownership, this bottleneck worsens exponentially.

In such a crisis, the price of real gold would rise rapidly, while paper gold prices could lag behind. Derivative holders might be unable to meet their payments. Schmidtke emphasizes that this is not just a theoretical problem, stating, “The risk is real. We saw this before in the silver market.” At that time, spot prices remained stable while physical premiums soared to astronomical levels. A similar break could occur in the futures gold market.

Blockchain-Based Gold Tokens: A New Solution

Schmidtke’s proposed solution is to keep ownership records on the blockchain. Physical gold-backed tokens like Tether Gold (XAUT) eliminate this problem. Each XAUT token is directly linked to a specific, allocated gold bar stored in a Swiss vault.

Unlike paper gold, tokens are fully redeemable and traceable. While physical delivery may still take time, investors can be assured that their gold is safe and trackable along with their “title deeds.” On-chain ownership can be transferred within seconds to a specific gold bar in the Swiss vault globally. This changes the rules of the game in futures gold trading.

The company has adopted this approach and has fully backed its treasury with XAUT. According to current data, Aurelion owns approximately 33,318 XAUT tokens, representing a value of about $184 million.

Aurelion’s Futures Gold Strategy

Aurelion CEO argues that XAUT provides the speed of digital transactions without sacrificing the advantage of physical exchange. “The way you own gold is as important as whether you own gold,” he said. The company is focusing on a long-term compounded return strategy rather than short-term arbitrage.

Aurelion plans to raise more capital next year to expand its gold treasury. According to Schmidtke, “hard assets” like gold and bitcoin play a complementary role for investors seeking store of value. This structural change in the futures gold market signals a digital transformation of traditional gold investment.