There's a troubling trend in the bullion investing community that could have major consequences for those who own gold and silver. Yet this development is being pitched as the next great innovation in bullion security.
Many investors may unwittingly be duped into disclosing exactly how much gold they have, and where it's stored, all because of security microchips that utilize near field communication (NFC) tags.
Slippery Slope of NFC
This technology has been purportedly making its way into bullion products such as gold bars or silver rounds. The advantage for consumers, it appears (from marketing material for such products), is that authenticity can quickly and conveniently be determined with a simple swipe or tap of your smartphone. The NFC tag embedded in the bullion product would then provide all sorts of information, mainly tracking data, about the bar or round itself. This also means such verification could theoretically be done anywhere you take your phone.
Companies in other industries utilize NFC technology to track and manage their inventory, which provides an array of useful insights about the supply chain and when to replenish stock. However, due to the unique privacy concerns that owning physical gold is used to address, including NFC in bullion products is an idea riddled with problems. Whether or not you decide to use its authentication features, precious metals with these NFC tags are automatically storing all of the tracking data digitally. The big selling point for these products should also be its biggest red flag to investors: the item is always generating a virtual paper trail of who bought the bullion and where.
This begs a slippery slope of questions about how this innovation might be leveraged. Could it facilitate compulsory gold registration, as it seems the government of India is always attempting to do? What are the potential tax or storage implications? Would it naturally lead to more robberies as hackers realize they might be able to access databases of information regarding the location of tracked gold?
The notion of gold or silver that automatically creates a record of its sale and transport when bought is anathema to a whole class of investors who focus on alternative assets. Gold is considered a safe haven when held in physical, tangible form—but what good is this if a criminal can literally steal reports about every time you buy gold?
Set aside for a moment the very real notion that a competent computer hacker could use the NFC tag data as a literal treasure map that will lead them to your valuables. Aside from this, who does NFC-enabled bullion benefit? Simply put: banks and the government. These are the very institutions that precious metal investors are typically wary of trusting, and thus prefer to store a portion of their wealth outside of the clutches of the financial system.
The list of hypothetical vulnerabilities created by NFC tag bullion is almost limitless. Imagine the far greater ease with which a large institution such as a state government could go about confiscating all of the privately held gold within its borders. It can track where and to whom every single gold bar in its inventory or treasury travels. (The usefulness of NFC tracking for auditing a large vault's gold reserves can't be denied, however.) The same benefit would theoretically apply to a central bank, as well as a large commercial bank, for that matter.
Consequently, this technology is a boon for big finance and other similar large institutions and gives the consumer little in exchange for utterly relinquishing all privacy. Any entity with the capital and opportunity to be in custody of, trade, or otherwise sell large quantities of precious metals are really the ones who benefit, under the guise of providing the customer with greater peace of mind and certainty in authenticity. Unfortunately, the trade-off is not so balanced as it seems.
Gainesville Coins doesn't believe NFC-tracked gold products are a net benefit to the consumer. There are many fantastic security measures already built into a number of the most trusted bullion products on the retail market; there's no reason for the average consumer to relinquish so much privacy about what ought to be discreet purchases and investments just so they can say their minted metal is definitively authentic. Any precious metals dealer who runs an honest business can guarantee you authenticity of your metals; otherwise, they would never last long in business without that trust! The free marketplace works this out on its own.
We will not carry these NFC tag products, and are accordingly offering our opinion that they pose a needless risk to customers.
If, for reasons of convenience in avoiding counterfeits, consumers make the folly of encouraging this technology to become widespread across the bullion market (which is distinctly possible), it could have dire consequences for gold owners around the world. Your government, your bank, your particularly nosy neighbor, or even your coin dealer could be keeping tabs on every ounce of precious metal that you buy—which seems to defeat one of the main purposes of purchasing physical gold to begin with!
Consider how many cases of major security breaches have hit the biggest companies or state governments just in the last few years. Every few months, another huge corporation or organization (Yahoo!, Target, Wal-Mart, the Democratic National Committee, the central bank of Bangladesh, or the most recent widespread ransomware attack) is infiltrated for troves and troves of potentially sensitive data. The number of documented cyber attacks doubled during the first half of 2016 compared to the entire 2015 calendar year. Moreover, these attacks seem to be getting larger in the scale and scope of how many computers or accounts they can affect before the malware is arrested.
The logic of buying physical gold rather than an option or ETF share perfectly applies in this case: Why expose your gold to any sort of risk of digital tracking when this is an unnecessary alternative to buying trusted products that already exist and are readily available?
In addition to making the admittedly far-fetched prospect of gold confiscation an immeasurably easier task, which is in any case a step that all but encourages government intrusion and centralization, the NFC bullion technology stumbles precariously close to the same pitfalls as the utopian "cashless society." Namely, it baldly gives federal authorities and banks too much control over your private data and your financial livelihood. In a relatively small, affluent, and homogeneous society like Sweden, that might work to some degree; but anything that even hints at the same system on a supranational—essentially global—scale should be viewed with an exceptionally high bar of skepticism.
It remains to be seen what segment of the market places this high of a premium on bullion that can be traced (by you, I suppose, but far more importantly by criminals, hackers, or some government institution). If you want gold with an added layer of security verification, a competitive selection of cutting-edge technologies to serve this function already abound: Mint SI™ from U.S.-based Sunshine Minting; VeriScan from Swiss refiner PAMP Suisse; the dazzling Heraeus Gold KineBar; or Bullion DNA from the Royal Canadian Mint. These proprietary security technologies offer the same authentication without being invasive. What pressing need does NFC bullion really fulfill, other than those of banks and overreaching states?
So all consumers who think their precious metals need to be tracked—whether by the feds or by the criminals—ought to be warned, caveat emptor. Don't voluntarily give away all sorts of personal data for no good reason!
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.