Adam Trexler: A New Way to Hold Gold (2016 Update)

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What if you could carry and exchange gold in the exact same manner as you do with the dollar bills in your wallet?

Two years ago, we introduced the precious metals community to a company called Valaurum, which has developed a technology that's making this possible.

From that write-up:

Democratizing Gold

In short, a fractional gram's worth of gold is affixed to layers of polyester, creating a note – called an "Aurum" – similar in dimension and thickness to a U.S. dollar bill. This gold (usually 1/10th or 1/20th of a gram) is commercially recoverable. So an Aurum offers similar potential as a coin or bar, in terms of providing a vehicle for storing and exchanging known, dependable increments of precious metals – just in much smaller (and more affordable) amounts than commercially available to date.

The big idea here? In a world where a 1oz coin of gold costs over $1,200, an Aurum will let you hold a few dollars' worth of gold in a single note. If you've got pocket change, you can be a precious metals owner.

And you don't have to change your behavior. You can store and transport an Aurum in your billfold along with your dollars.

Understanding the Aurum

As the saying goes, a picture's worth a thousand words. Here's a picture of an Aurum designed for Peak Prosperity that the Valaurum team produced for us:

You'll see that with even just 1/20th of a gram of gold involved, it's enough to make the Aurum appear to be "made of" gold. The characteristic luster, color, and shine of the 24-karat gold used is immediately apparent.

The Aurum is designed to be handled in the same manner as we do with our "paper" money. And, despite having a more 'plastic' feel to it (resulting from the polyester backing), it's as flexible, lightweight, and familiar-feeling as paper currency.

The big difference, of course, is that instead of being a claim on something else, it simply is what it is: a fractional gram of gold. It can be stored, traded, or melted down – just like a coin or bar.

Here's a brief video that gives an overview of the production process:

//www.youtube.com/embed/eKYxlmwrKQw

Implications

Being able to hold gold in this form is significant for several reasons. 

First, it makes gold ownership available to all budgets. Many of the world's households have been priced out of gold to date. This changes that completely.

Second, it enables the potential for everyday transactions should we ever return to a precious metal-backed monetary standard. It answers the challenge: How will you pay for your groceries with gold? With an Aurum, it's now easy.

Whether Valaurum's product emerges as the winning horse or not, the world definitely needs this type of solution (i.e., convenient fractional physical metal) to go mainstream. 

I'm very excited by this new innovation in the bullion industry, and I explore the matter in depth in this podcast. If you're similarly intrigued, it's worth the listen.

The response to that podcast was tremendous. It quickly became one of the most popular in Peak Prosperity's history. If the description above interests you, and you haven't listened to it already, you can do so by clicking here.

So, what has happened with the aurum over the past year? With gold increasingly looking like it put in a long-term bottom back in Dec 2015, and modern-day hyperinflationary currency crises underway in countries like Argentina (33% annual inflation), Ukraine (50% in 2015), and Venezuela (720%!), the wisdom of not only owning precious metals as a means of wealth preservation, but holding them in some small-denomination tradable form, makes more sense than ever.

Is the concept of the aurum note catching on with precious metals investors?

We've invited Adam Trexler back to the program to find out. In this week's podcast, he shares with us a number of positive updates about adoption of the aurum, demand by the bullion dealer community, and product enhancement to the gold note itself.

Introducing The 2016 Peak Prosperity Aurum Note

The Peak Prosperity aurum notes we've printed up in the past quickly sold out. Demand was much higher than we had expected.

For those who did not have the chance to purchase any -- or for those who did, and are interested in collecting each new series that gets produced -- we have good news: the new 2016 Peak Prosperity aurum (1/4th gram) is now available for purchase.

Note that this year's aurum note contains more fractional grams of gold than both the 2014(1/20th gram) and 2015 (1/10th gram) versions. In the podcast, Trexler mentions that Valarum's technology innovations now allow for a thicker note, so we thought we'd give it a go this year.

Also note that the premium-to-spot price of this year's aurum note is lower due to several factors, including the higher denomination and technical efficiencies Valaurum has put in place over the past year. But in addition to that, Trexler and his team are giving Peak Prosperity readers a discount of 15% on the 2016 Peak Prosperity aurum note. To receive the discount, enter the code PEAK16

Get the 2016 Peak Prosperity aurum

 

Click the play button below to listen to my interview with Adam Trexler of Valaurum (44m:09s):

This is a companion discussion topic for the original entry at https://peakprosperity.com/adam-trexler-a-new-way-to-hold-gold-2016-update/

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Last year, we had a few commenters who complained about the premium over spot of aurum's fractional gold notes. 
I felt their arguments made mistakes on both the math and the logic for these notes, so I'm summarizing my responses from last year here at the start of the comments thread, in hopes to get everyone grounded.

The premium over spot we pay (anywhere) for gold bullion goes up as size increments become smaller due to the relative amount of production cost per unit value

Now, let's look at the premiums for other small-increment bullion products. The premium-to-spot on the average 1 gram coin or wafer is 25%. For a 0.5 gram coin/wafer, the premium-to-spot jumps to 65%. So the premium jumps by more than 2x as the denomination is cut in half.

Of course, this is an exponential process, not a linear one, so we should expect a 0.25th gram to have a premium substantially higher than twice 65%. With this math, the 70% premium-to-spot (inclusive of the discount Valaururm is offering us) for the 0.25 gram aurum looks extremely generous.

Bottom line: you do not buy very small-increment bullion products to get the best premium-to-spot price. If you're looking for that, buy 1oz Krugerrand coins or higher denominations of PAMF Suisse bars. Of course, you'll need to shell out at least $1,275+ at today's prices.

You buy very small-increment gold bullion products for the smaller value. Usually, as a hedge in case you ever want/need to use them to transact for everyday purchases.

Valaurum's aurums enable you to do that for transactions of $20 or less (much less if you're using their 1/20 gram notes), the smallest of any provider that we're aware of. This is not a "rich man's" product. Quite the contrary. For as little as $10, nearly anyone can give themselves some piece of mind that, should there be a collapse of fiat currency, they'd hold a form of money that may still buy a meal (or more, as the relative value of gold would likely skyrocket in such a situation).

I challenge anyone here to find a superior offering at the extremely small increments that Valaurum offers (1/4 gram, 1/10 gram or 1/20 gram). By superior, I mean lower premiums, ease of handling, high product integrity and standardization, and anti-counterfeit protection. If you find one, I'd sure love to see it.

Simply put: if you're interested in having the ability to make very small price transactions using physical gold, do you have evidence of a better solution that this? I don't.

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I just tried it out, discount and all, to make a purchase of aurums. Worked great, thanks. This reminds me of my teen years when my Dad  collected  our silver dimes and quarters and he gave us the newly minted non-silver coins. I have the coins now.

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Adam, Not to search too far, Kitco.com sells sheets of 50 x 1 gr gold (Au) (Degussa) @ 2134 (4/10/16), i.e. ~$42.70/ 1 gr. The premium over spot ($1248/oz) is much less steep , and it is 7% (or $1335/oz). The proposed Aurum, 4 x ¼ gr =$80/gr makes the Aurum 1 gr unit (4 x 1/4 gr) to be at premium of 100% (1 gr = 0.032 troy ounces , the Aurum’s issuers sell 1 oz of gold at a whopping $2500/oz). For what? To have some gold-denominated pocket change? A bit absurd, by my standard. I don’t think there will be a need for smaller quantities than 1 gr Au, even if the currencies collapse. If one needs smaller denominations, one can purchase silver (Ag) sheet of 100 x 1 gr (Valcambi) for $94, i.e. $0.94/1 gr Ag (same Kitco.com). This also carries a hefty premium, approximately 90%. BTW: 1oz of Krugerand is selling today at $1280 (same Kitco.com). i.e at premium = 2.6%. Just one man’s opinion. -Peter

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Sigh…
Peter, you clearly did not read carefully what I wrote.

Of course a full 1 gram of gold has a much lower premium-to-spot than a 1/4th gram: 

The premium over spot we pay (anywhere) for gold bullion goes up as size increments become smaller due to the relative amount of production cost per unit value

Now, let's look at the premiums for other small-increment bullion products. The premium-to-spot on the average 1 gram coin or wafer is 25%. For a 0.5 gram coin/wafer, the premium-to-spot jumps to 65%. So the premium jumps by more than 2x as the denomination is cut in half.

Of course, this is an exponential process, not a linear one, so we should expect a 0.25th gram to have a premium substantially higher than twice 65%. With this math, the 70% premium-to-spot (inclusive of the discount Valaururm is offering us) for the 0.25 gram aurum looks extremely generous.

Bottom line: you do not buy very small-increment bullion products to get the best premium-to-spot price. If you're looking for that, buy 1oz Krugerrand coins or higher denominations of PAMF Suisse bars. Of course, you'll need to shell out at least $1,275+ at today's prices.

You buy very small-increment gold bullion products for the smaller value. Usually, as a hedge in case you ever want/need to use them to transact for everyday purchases.

Valaurum's aurums enable you to do that for transactions of $20 or less (much less if you're using their 1/20 gram notes), the smallest of any provider that we're aware of. 

This is why, in my opinion, contrasting premium-to-spot on a 1 gram wafer to a 1/4 gram note is an obtuse-minded exercise of comparing apples to oranges.

You go on to express your belief that:

I don’t think there will be a need for smaller quantities than 1 gr Au, even if the currencies collapse.
Hey, that's your belief. I'm not going to try to change your mind. I do ask that you understand that, just because it's your belief, that doesn't make it correct. Maybe time will prove it to be, maybe it won't. But not everyone shares it. Personally, I can easily envision scenarios where fractional gram gold notes could be preferred for small everyday purchases (food, gas, etc) over silver.

And as for the premium-to-spot on these aurum notes, my challenge still stands. Almost no one else can produce fractional gram products at the 1/4, 1/10 or 1/20 gram denominations, and not at the same price or utility and quality levels.

As a data point, here's one of the very few 1/4 gram units I could find, offered by the Great American Coin Company, selling for $20.16. That's 18% more expensive than our aurum note, for a brand I'm unfamiliar with in a form factor that's much less convenient.

Find me a better apples-to-apples comparison on both price and product integrity and I'll be happy to listen. 

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Adam,
We always will pay extra price for convenience, in this case for small divisible unit of gold. I get it. But, at the end, what matters is the face value, and not what I paid for a unit of the new currency, i.e. Aurum.

Here is a semi apples –to-apples comparison between Aurum and gold ingots.
If we have a currency collapse, then I will pay for my 4 gallons of gas to power gas generator , lets say 0.30 gr of gold. So I can pay in 2 different ways:

  1. 3 x 0.1 gr Aurum. (today this will cost me 3 x 11.75 = $35.25, per: https://silvergoldbull.com/aurum-gold-wafers, or maybe I will get 15% “discount”).

  2. 0.5 gr gold bar and should get a change of 0.2 gr Au (maybe 2 x 1/10 gr Aurum or extra 2.4 gal gas).
    a. (today that will cost me (per: http://bullionexchanges.com/1-2-gram-istanbul-gold-refinery-igr-bar-9999-fine-in-assay) = ($24.80-0.2 gr back) . (If I assume that 0.1gr Aurum costs in retail $11.75, I almost paid nothing for my 4 gal of gas!?).

In any of these potential transactions, neither the buyer nor the seller would care how much did I pay for a fraction of a gram of gold and whether I carry 0.5 gr bar or multiple 0.1 gr Aurums. What matters is the face value, i.e. 0.30 gr gold to be paid.

How does the today’s price of $35.25 compare to ($24.80-0.2 gr Au)?

Isn’t this a fair comparison? How can a premium of 100% for ¼ gr Aurum unit (over spot) be a justification for making small units( 1/128 oz) available? At the end, what matters is the face value and not what I paid for this small Aurum unit. Nobody will compensate me for 100% premium I paid.

In the above example I brought up 0.5 gr gold units. These are available and cost $24.80/0.5 gr Au.
How does this compare (apples-to-apples) to $20/0.25 gr Au for Aurum, i.e. $40/0.5 gr Au? I say Aurum is extremely overpriced compared to the face value. My prediction is, it will go down in nominal (USD) price by at least 30%-50% to represent a “value” to a conscious customer. There will be also a crowd of less knowledgeable people who cannot really compare value-to value (Au spot, price per troy ounce, conversion to grams, then conversion to fraction of a gram, fancy look of the Aurum, etc.) -they will be the potential uneducated buyers. I would expect PeakProsperity to not promote Aurum for the reasons spelled above and rather steer people toward much lower premium products like the one is provided link to (again: http://bullionexchanges.com/1-2-gram-istanbul-gold-refinery-igr-bar-9999-fine-in-assay )

Regards,
-Peter

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"Simply put: if you're interested in having the ability to make very small price transactions using physical gold, do you have evidence of a better solution that this? I don't." 
I do. https://www.bitgold.com This Fintec company offers a prepaid Mastercard in various currencies fully backed and funded with your physical gold purchased and vaulted through them. !% in !% out with no storage fees. The future is looking bright for Bitgold with nearly 1 million customers using this platform. PP should host a podcast with Roy Sebag or Josh Crumb. Great guys.

 

 

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As usual, PP has again provided an excellent forum for the discussion of resilient assets in this world of ever increasing complexity. When I consider the breakdown of my assets, I find my liquid assets provide me with a greater sense of value than my fungible ones. However, having said that, I find my that my beer, beans and beef downstairs in the basement don't quite compare to to the nominal bits and bytes represented on one of the many statements I receive from various financial institutions every month detailing my net worth. I will continue to put seeds into the ground and purchase bank stocks as a hedge to any imminent catastrophe. Laminated gold or gold dental work. One's fungible and the other isn't.
Love the comments from everyone on both of the last two featured interviews. Great food for thought.

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Adam said:

This is why, in my opinion, contrasting premium-to-spot on a 1 gram wafer to a 1/4 gram note is an obtuse-minded exercise of comparing apples to oranges.
The way I read this, you are inferring that Peter's line-of-thought is "obtuse-minded".  Mirriam on-line definition of obtuse:

stupid or unintelligent : not able to think clearly or to understand what is obvious or simple

Really?  Denigration of another person's stand on a topic does nothing strengthen your argument against it.    And it is beneath the typical high-standards of respectful argument that Peak Prosperity aspires to.

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BitGold and Silver Eagles seem far more practical and cost effective alternatives in my humble opinion. 

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I don't think (either) Adam is promoting Valaurum as a means to hold large quantities of one's Gold… that would be silly based on premiums.  It is though a great way to hold some portion of your holdings if you are amenable to Gold, and maybe if you were a very small holder it would be a reasonable way to hold most of your Gold.  If you have ever held a 1/20 ounce coin, the smallest denomination practical, you know how marginal this size is.  While worth something like $80 dollars (~30% premium)… it's so tiny it could be easily lost if not kept in a holder, and you can't really see the design details on it without taking a magnifying glass to it.
http://www.gainesvillecoins.com/products/171177/2016-1/20-oz-gold-lunar-year-of-the-monkey-australia-perth-mint.aspx

All arguments dissolve if we get to $8000 or $10,000 Gold, because now this .25 gram sheet becomes a perfect vessel for holding value.  For me, philosophically, the Valaurum is more like jewelry in the way it exemplifies the beauty, or bling value of the Gold.  I also love the juxtaposition of a high tech manufacturing process (PVD) with the oldest form of money.  I will be buying a stack for those inevitable teachable moments…          

      

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Bitgold is very interesting but Americans are prevented (in an exceptional freedoms kind-a-way) by law from using it.

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Jim -
You're exactly right. And thanks for the opportunity to clarify this point.

If you're like most of our readers, with access to the full range of bullion denominated formats, we do NOT advise holding a large percentage of your gold in fractional physical units – be it aurums, wafers, or whatever. It just doesn't make mathematical sense given the premiums over spot. 

But holding some of your stack – 1% worth, perhaps? – in fractional units does make sense to us, as insurance, in the (hopefully) unlikely event there's ever a period where fiat money suddenly loses its ability to pay for living essentials. With 720% hyperinflation raging today, you can bet folks living in Venezuela wish they had more fractional gold units in their possession right now with which to buy food, medicine, fuel, etc.

And during such a time, we think the form factor of the aurum note could offer an advantage. It's easy to share yet familiar to handle (just like a bill note), much less losable like the tiny fractional ounce (not gram, mind, you, which is much smaller still) example Jim mentions, and difficult to counterfeit.

But we're not pushing the aurum, specifically, on anybody. If you prefer a different form factor, that's completely fine with us. We just think having the insurance offered by a few fractional gold units – after you've built your core bullion holdings, of course – is a good thing to add to your preparations, if you're able to. (And by the way, we love silver, too. We're in no way discouraging folks from folks from owning that.)

As an addendum, I also agree with Jim about the "teachable value" of the aurum notes, which I spent a fair amount of time describing in my first podcast with Valaurum. I find placing one in someone's hands is more persuasive in conveying the gravitas of gold as a store of value than a 10-minute explanation…

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Pinecarr -
I'm sorry if my word selection didn't sit well with you.

I find it frustrating that despite my specific request for critics to find examples of superior offerings  – at the same denominations that Valaurum manufactures (1/4, 1/10 and 1/20 gram) – they instead compare vs higher denomination formats (1 full gram, etc), which have an inherent mathematical advantage in terms of premium-to-spot.

This apples-to-oranges argument unnecessarily siderails the discussion, in my opinion. Not just in this thread, but in the previous ones with Valaurum, as well.

If these folks want to argue that holding fractional units of gold in general is too costly on a premium-to-spot basis vs higher denomination formats, that's fine. That could be an interesting discussion to have (for example, what is the size below which things become 'too costly'?). But it's not the one I've asked the critics to engage in. And the repeated ignoring of my clearly-worded request, as well as the calculations I've provided to lay out the price curve, is beginning to seem intentional.

My specific question remains: in terms of owning physical, fractional gold bullion are there examples of :

a superior offering at the extremely small increments that Valaurum offers (1/4 gram, 1/10 gram or 1/20 gram). By superior, I mean lower premiums, ease of handling, high product integrity and standardization, and anti-counterfeit protection. If you find one, I'd sure love to see it. 
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cello55, The Bitgold platform of savings, payments and redemption in gold and the prepaid debit Mastercard is available for use in the US. The send gold payment function is currently not available to US citizens but should change in the future according to a statement from Bitgold.
 

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BitGold is increasingly interesting to me, but I admit it has taken me a while to warm to it. I still have reservations that have yet to be completely addressed, though.
In the context of this particular thread I do want to point out an important distinction: it is not gold-in-hand ownership. Instead, you have a Mastercard that draws from an account backed by physical bullion.

For the worst-case scenario (which admittedly I don't spend a lot of time worrying about), where the grid is down or the infrastructure of our financial system is not functioning, all you have in hand is a piece of plastic.

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Agreed, but just to clarify, as an additional holding option you can choose to redeem your Gold from Bitgold in 10gr cubes or various Gold Coins. However, they are clear about not trying to be a bullion dealer but do offer a physical gold delivery service that is fulfilled by Dillon Gage in Texas. Note: All the Gold held by you thru Bitgold is allocated in the Brinks vaults and is designated in Kilo bars only. The BG Aurum ledger keeps track of your ownership percentage. 

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When there is financial trouble how long would it take to get this gold? This is the problem!

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My criticism of BitGold is that it's Gold on the IRS' radar.  When you own Gold in a financial account… you have to report on it yearly.  Correct me if I am wrong, but this is a reportable account.  
I have followed the advice of Egon Von Greyerz and others who feel that it's important to own physical Gold, in your name, outside of your country, outside of the banking system.  It's that last part where I think BitGold fails.  Everyone needs to do their own due diligence on a solution that fits their situation best… and I am not knocking the idea of holding some BitGold… but I feel that having a position that fulfills the list above is more critical.  

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Very cool!   Can't wait to get my hands on these.