Gold Value Risk

The value of a Gold Token, as a document of title to gold, reflects the price of gold as provided by an independent price source, subject to bid-ask spreads and applicable fees. Purchasers of a Gold Token should be aware that a Gold Token can go down in price as well as up and Gold Token holders may lose the value of all or part of the amount of capital used to purchase a Gold Token. Adverse movements in the price of gold will negatively affect the value of a Gold Token, such that if a Gold Token holder sells a Gold Token and the price of the relevant gold has decreased since the time they purchased a Gold Token, the Gold Token holder will experience a loss. Gold prices may fluctuate widely and may be negatively affected by numerous factors, including: (a) global or regional political, economic or financial events and situations, particularly war, terrorism, expropriation and other activities (particularly unexpected activities) which might lead to disruptions to supply from countries that are major gold producers; (b) global metal supply and demand, which is influenced by such factors as exploration success, mine production and net forward selling activities by metal producers, jewelry demand, investment demand and industrial demand, central bank purchases and sales, and production and cost levels in major gold-producing countries such as China, the United States and Australia, net of any recycling and any shortages of a particular type of gold could result in a spike in prices of that type of gold; (c) financial activities including investment trading, hedging or other activities conducted by large trading houses, producers, users, hedge funds, commodities funds, governments or other speculators which could impact global supply or demand; and (d) financial market factors such as investors’ expectations with respect to the future rates of inflation, movements in world equity, financial and property markets, interest rates and currency exchange rates, particularly the strength of and confidence in the US dollar. General movements in local and international markets and factors that affect the investment climate and investor sentiment could all affect the level of trading and, therefore, the price of gold and this may lead to a fall in the price gold, which will have an adverse impact on any Gold Token holder that purchased a Gold Token at a higher price. In addition, crises may motivate large-scale sales of gold which could decrease the price of gold and adversely affect the value of a Gold Token. For example, the 2008 financial crisis resulted in significant sales of gold by individuals which depressed the price of gold. While gold can function as a store of value over time, even if a Gold Token holder is able to hold a Gold Token for the long-term, such holder may never experience a profit and may experience sharp value fluctuations over certain periods. In addition, Gold Token purchasers should be aware that while gold is used to preserve wealth by holders of gold around the world, gold has not necessarily maintained its value in terms of purchasing power in periods of social or economic instability.

While gold can offer holders a number of benefits, including the potential for price appreciation, there are several downsides to holding gold, as there are with any asset class, including that: (a) gold has no cash flows unlike other asset classes such as equities, bonds and property. This means that for holders to profit from gold (and, accordingly, for Gold Token holders to profit), the price of gold must increase; (b) gold’s lack of cash flows also means that it is hard to place an intrinsic value on the price of the precious metal. Whereas other assets can be valued based on metrics such as the present value of all future cash flows, gold cannot be valued this way; and (c) gold can be volatile and have negative returns. Gold is a potentially attractive diversifier to a portfolio because it generally behaves differently than equities and bonds and is considered a store of value over time, but gold does have periods of volatility. For instance, while gold has posted nearly 30% gains in 2010, gold posted nearly 30% losses in 2013.