(Bloomberg) -- Jewelers have long used a simple mechanism to protect themselves against volatile gold prices — borrow the precious metal rather than buy it outright.
• Anthropic’s Mythos Model Is Being Accessed by Unauthorized Users
• Inside Alex Cooper’s Unwell: Tears, Screaming and Employees Looking for the Exit
It’s a trick with origins in antiquity and used from the gold souks of Dubai to the bullion desks of India, allowing artisans to produce and sell their wares before settling the tab to align costs with revenue.
If gold prices rise, the value of the rings and necklaces in the display case climbs with the debt. If they fall, both shrink together. The trade-off is interest on the loan.
Now, a jeweler, an asset manager and a fintech firm are wrapping this age-old wisdom in a crypto token, offering investors gold that actually pays a yield.
It’s an example of how digital technology is disrupting traditional finance. Gold has always been a “dead” asset, a store of value that, unlike stocks and bonds, pays no dividends or interest to its owner.
“For centuries, jewelers didn’t borrow paper money to buy gold, they borrowed the gold itself,” said Ivan Hoo, executive director at Singapore jeweler Mustafa Gold. “We are giving that ancient logic a sleek, synthetic upgrade.”
Mustafa has teamed up with FundBridge Capital which, in collaboration with tokenization platform Libeara, is offering investors digital tokens that track the price of gold.
The money FundBridge gets for selling its “MG999” tokens is lent to Mustafa, who pays 2.5% interest on the loan. Mustafa uses the money to buy physical gold and make jewelry.
Crucially, the loan is denominated in gold rather than cash. If Mustafa borrows $1 million, the debt is expressed as the amount of gold that sum could buy at prevailing market prices.
This means if gold prices rise, Mustafa’s repayment obligation increases — but so too does the value of its jewelry. If prices fall, the debt shrinks along with inventory value. The matching of costs and revenue helps to stabilize margins.
There’s an upside for investors too. They get exposure to gold but with the added bonus of yield derived from the interest Mustafa pays on the loan. After deducting management fees, FundBridge pays a 1% yield to token holders.