A man shows a piece of pure gold at a jewelry shop in Pekanbaru, Riau last July. (Antara Photo/FB Anggoro)
Is Indonesia Ready for the Future of Gold?
BY :SHAUN DJIE
OCTOBER 08, 2020
The market uncertainty caused by the Covid-19 global pandemic has forced Indonesia’s economy to a crawl — causing the country to experience its lowest level of inflation in more than two decades, as consumer household spending drastically reduces. However, despite economic uncertainty, investors in Indonesia are betting on gold as a safe-haven to protect their wealth, with local e-commerce giant Bukalapak reporting an increase in demand for gold every year and the option to purchase it digitally.
This upward trend started with geopolitical tensions between the United States, and China surfaced last year — causing gold traders such as Sembada Gold to report a 15 percent year-on-year growth in Indonesia. Indonesia’s gravitas towards gold is also shown by the reported increase in gold transactions in several local e-commerce firms such as Bakalapak and Tokopedia.
As one of Indonesia's oldest and most popular investments, gold has long been used as a hedge during an economic downturn. In more recent history, gold performed exceptionally well during the 2008 financial crisis — having a small slip of approximately 15 percent during the initial market turmoil in October 2008, before rebounding to over $1,100 by January 2009 and outperforming other assets in the following months.
Challenges in the Gold Industry
Relying on gold’s shiny track record, panicked investors worldwide are rushing to purchase the precious metal, causing Indonesia and other gold hubs to witness a surge in gold exports. While this may sound promising for Indonesia’s economy as the country is home to Grasberg mine, the world’s largest gold and copper mine—the pandemic has disrupted its production output.
Grasberg mine, which produces four percent of global gold production — may not be able to meet demand as it now faces a lower production output after a period of suspended operations, making it more difficult for investors and consumers to access this precious metal.
In addition to a reduced supply, gold has traditionally been a negative-yielding instrument and hardly accessible to everyday consumers due to the high premiums associated with buying, insuring, storing, and owning gold — placing it in the reach of only a handful of wealthier individuals who can afford to pay for the premiums. As such, the inaccessibility to gold has caused gold shops across Asia to witness a drop in customers as prices hit sky high.
While an increasing number of Indonesians are making investments, the country is still under-invested, with only 0.52 percent of the population making active investments. As such, emerging technologies will play a crucial role in opening up alternative channels for everyday consumers to easily invest in time-tested assets, breaking down the barriers of entry to the gold market, and democratizing the asset for everyone. Gold should be accessible and available to everyday consumers and investors, protecting them amidst an economic downturn.
Digital Gold—a Better Alternative
Emerging technologies such as blockchain have given gold a new channel to shine in a digital space — opening up an alternative route for everyday consumers to purchase and own gold. One way is through “digital gold” — a digital token backed by actual gold bullion.
Digital gold enables gold to be transferred across the country as easily as sending an online payment or a bank transfer — opening up gold markets to greater innovation through providing everyday consumers with greater utility by reducing the barriers of entry to the gold market. Also, digital gold allows lower-income groups to micro-invest their savings into the world’s most time-tested asset by purchasing as little as one gram of gold — allowing them to protect their savings in times of uncertainty.
While an output reduction within a gold mine will cause delays throughout the entire supply chain, from logistics coordination to the physical delivery of the gold to the customers—being placed in the digital realm reduces supply chain disruptions and allows anyone with an internet connection to move gold online without the inconvenience associated with storing, carrying, and delivering gold.
Digital gold could become a widely accepted solution in Indonesia due to its surging digital adoption and acceptance rate. This results from a tech-savvy population, high internet adoption, and mobile penetration — fostering the growth of innovative emerging technology companies that contribute to Indonesia’s $133 billion digital economies.
Indonesia and Digital Gold, a Perfect Match
Indonesia has grown to embrace blockchain technology with large institutions such as Bank Indonesia implementing its own digital currency backed by blockchain. In contrast, associations such as Indonesia Blockchain Association continue to play a crucial role in driving blockchain initiatives through education and regulation shaping.
Indonesia’s dominant position as a gold hub combined with the progressive acceptance of blockchain technology primes the country to adopt digital gold — enabling all Indonesians to unlock the s benefits of gold and protect their savings from future black swan events.
Shaun Djie is the chief operating officer and co-founder of Digix, a Singapore-based digital gold investment platform.