Why 98% of gold investors only own paper promises

Gold has surged over 80% in the past 12 months, making it one of the best-performing assets. But there's a hidden time bomb ticking beneath this golden rally that most investors don't even know exists.

Here's the shocking truth: 98% of gold investors don't actually own a single gold bar. Instead, they own what Aurelion CEO Björn Schmidtke calls "small pieces of paper that say 'I owe you gold.'" And everyone just collectively agrees these papers have value.

The great gold illusion

When you buy gold through an ETF, you think you've bought physical gold. The reality? You've purchased what Schmidtke terms "paper gold" – essentially an IOU backed by the promise that somewhere, somehow, there's a gold bar with your name on it.

But here's where it gets problematic: you don't know which gold bar you own. There's no proof of ownership beyond your ETF share certificate. Schmidtke estimates that 98% of gold exposure is effectively unallocated IOUs, with investors holding billions of dollars worth of promises backed by gold they can't identify.

This system has worked for decades because few investors ever demand physical delivery. But what happens when they do?

The seismic event scenario

Imagine a catastrophic currency devaluation where panicked investors suddenly want their physical gold. "You simply cannot move a few billion dollars' worth of physical gold in a single day," Schmidtke warns. Without proof of ownership, this creates massive logistical bottlenecks that could trigger market ruptures.

The risk isn't theoretical. "We've already seen it in the silver market," he notes, pointing to past events where physical premiums rose while spot prices stayed flat. In a crisis, actual gold prices could soar while paper gold prices lag, leaving derivative holders unable to settle.

Think of it like this: imagine a real estate developer selling housing units by simply issuing shares without ownership deeds. When delivery time comes, nobody knows which units belong to whom, creating chaos.

Blockchain's answer to the ownership problem

Aurelion has pivoted to Tether Gold (XAUT), a blockchain-based token backed by physical gold in Swiss vaults. Unlike paper gold, each XAUT token links to a specific, allocated gold bar.

The key difference? Ownership proof. While physical delivery still takes time, XAUT provides what Schmidtke calls a "title deed" that can be transferred globally in seconds on the blockchain. Every token is searchable and redeemable, eliminating the ownership uncertainty plaguing traditional gold investments.

Building durable gold equity

Aurelion currently holds 33,318 XAUT tokens worth approximately $153 million. But this isn't a short-term play. "This is not a short-term arbitrage strategy," Schmidtke emphasizes. "It's about building a durable Tether Gold equity that investors can participate in over time."

The company sees gold and bitcoin as complementary assets, with XAUT providing the speed of digital transactions without sacrificing physical settlement. "How you own gold matters as much as whether you own gold," he argues.

Aurelion plans to raise more capital over the next year to expand its gold treasury, betting that XAUT is still early in its adoption cycle with significant room to scale.

The bigger picture

This shift reflects a broader transformation in how we think about ownership in the digital age. From stocks to real estate, and now gold, tokenization is challenging traditional ownership models. The question isn't just whether you own an asset, but how provably and securely you own it.

For gold investors, this matters more than ever. As geopolitical tensions rise and currency uncertainties mount, the difference between owning a promise and owning an asset could become painfully clear.