Exchange for Physical gold trade blew up - crypto had an answer
Last month as a result of the Covid-19 lockdowns, the physical gold market was in such significant lock down that the basis between physical gold and paper gold (E.g. CME gold futures) blew out to black swan levels, costing numerous trading houses billions. This was because through the EFP trade these trading departments are short CME and long physical. The fair basis was around $8 USD but popped out to over $60 on numerous spikes.
So the problem was the inability to access the physical gold market, but there were in fact two ways in which to get long physical gold at that time.
The two solutions were Paxos Gold (traded on Kraken) and Perth Mint Gold Token (traded on KuCoin).
Both these gold tokens that are directly convertible into the same form of gold that's traded in the institutional gold market - London Good Deliver Bars (LGDB).
The simple play was to buy PaxG or PMGT and sell the inflated gold futures contract and then wait for the spread to come in. Of course one could have redeemed the token for physical gold and delivered that gold into the CME contract, but the first option is far cleaner and has more edge in it after fees.
So the problem was the inability to access the physical gold market, but there were in fact two ways in which to get long physical gold at that time.
The two solutions were Paxos Gold (traded on Kraken) and Perth Mint Gold Token (traded on KuCoin).
Both these gold tokens that are directly convertible into the same form of gold that's traded in the institutional gold market - London Good Deliver Bars (LGDB).
The simple play was to buy PaxG or PMGT and sell the inflated gold futures contract and then wait for the spread to come in. Of course one could have redeemed the token for physical gold and delivered that gold into the CME contract, but the first option is far cleaner and has more edge in it after fees.
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