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The Ideal Derivatives Alternative – a Look at Gold as Collateral

The Ideal Derivatives Alternative - a Look at Gold as Collateral

The current notional value for Derivatives stands at $1.5 Quadrillion Dollars. And, it’s literally a time bomb waiting to take off.

One thing is for certain, and that is the fact that there is no legislation that protects the totality of this magnitude regarding how unregulated the derivatives markets are. With that being said, hedge funds, who were regular purchasers of these custom financial instruments are starting to see a tremendous flow of capital leaving their realm. This catastrophic movement is thanks to the markets’ current stance and how volatile the global platform has become.

According to an article written on Global Research by Stephen Lendman, it was stated that the Financial Deregulation had turned Wall Street into a Casino without any specific rules. It was a haven for power brokers who were in the game for large volume transactions. Not only has this caused a hold up in the movement of capital across the international investment landscape but it has also created a very conservative marketplace.

A Large Focus On Family Offices

While the hedge fund community continually suffers an increased level of criticism due to its fee structures and unorthodox approaches, Family Offices have taken an aggressive stance on conservative capital deployment strategies.

In most cases, their principal focus has been prioritized to ensure the full preservation of their capital, by means of hedging against market trends, deviations caused by unexpected financial issues as well as realizing a risk-adjusted long-term median in which their capital remain unaffected by currency fluctuation.

While all this, Family Offices have always considered traditional precious metals investing a long-term strategy which took into consideration currency arbitrage. Yet, no precious metal beats the king. And, that is Gold itself.

Setting The Standard Of Using Gold As Collateral

For years, Gold has been the standard for the absolute long-term Collateral that responds well to market downturns. Aside from all the negative commentaries and certain circumstances, Gold still holds and has held a tremendous upside position in its lifetime value.

When looking at other assets that are relatively correlated with the markets, Gold sustains a price point that remains unchanged and qualifies as a long-term asset class that should be considered for most sustainable value portfolio managers. From the various market bubbles to the real estate crash, using Gold as a means of collateral may have been the ideal fit for playing it conservatively in terms of asset allocation.

Standardized Corporate Debt Using Gold Assets

In most cases, the bond markets have suffered a tremendous loss in the past decade alone. With close to hundreds of billions of dollars coming due within the next 5 years, the pressure is on.

In our Superior Gold Mining Podcast, we have covered a series of discussions in reference to facilitating large scale funding using our Gold Assets. Albeit that most of the assets are in the form of verifiable in ground reserves, the unique capitalization structure offers an advantage point for institutional investors by way of ensuring the long-term sustainability of a project while having confidence in the allocated collateral.

For instance, if a project were to need $100 Million, in theory, the operational structure would be set up so that a 30% portion be set aside for the Gold operations required to sustain the collateral transition. By this example, a $30 Million side fund would be set up to run a mining operation that solely focuses on extracting the desired Gold in a 1 to 3 ratio. Going by this example, our objective would be to set aside $300 Million in Gold Assets until the maturity of the issued debt.

This shifts the momentum of risk drastically, where instead of focusing on a completely unregulated time-bomb market such as the derivatives, Gold will be the set standard as a means of collateral.

Using this strategy, investors and businesses alike can find a common ground to preserve capital long-term while providing an upside by project participation or be considered a fixed income strategy.

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The Ideal Derivatives Alternative – a Look at Gold as Collateral


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