The Chinese have always loved gold but at this point, gold as an asset class isn’t what it used to be for Chinese investors who want to move out of the country.
And make no mistake, this is the main driver of the short domain phenomenon: the fact that people from China want to protect themselves by moving at least some of their wealth abroad.
Gold as an asset class has all of the characteristics it needs to be desirable: it’s finite, it’s durable and portable… but just how portable is it in 2015 and beyond?
Therein lies the key to understanding why gold lost its glitter, pun intended.
Let’s assume that 500 years ago, you had to flee the country due to war or another reason.
Could you have taken your house or land with you? No, you’d have to leave those behind.
Could you have taken lots of animals with you? No, people would have stolen them from you.
Could you have taken a ton of wheat/rice/whatever with you? No, too bulky.
In such situations, gold shined (yes, yes, pun intended) as an asset class.
A few pieces of gold hidden in your pocket or up your… nevermind… could have made the difference between not standing a chance and succeeding.
Portability was perhaps the main selling point of gold for 5000+ years.
Nowadays, the portability argument lost its luster (three puns for the price of one).
Why?
Well, let’s assume a war breaks out or something dramatic happens and you have to leave.
Great, you can just take your gold with you… right?
Not necessarily.
You see, in the past just like now, dramatic events such as wars and socio-politico-economic turbulence were accompanied by capital controls.
The leaders of a country don’t want wealth to leave the country in question, so they try to block such attempts through capital controls.
With today’s technology, getting your gold across the border is easier said than done.
There has been technology in place to detect gold for quite some time now, so the risks are considerably higher than let’s say 500 years ago.
Taking a domain with you, on the other hand, is a piece of cake.
You don’t even need paper as long as you can memorize the login details you use at the registrars where you keep the domain.
Even taking bitcoins with you that way (by memorizing your details) is possible, albeit harder.
Portability, portability, portability.
That is, in my opinion at least, the key to understanding why Chinese investors find domains so desirable.
November 6th, 2015 at 1:25 pm
People own gold to protect against currency debasement. Always have. One can buy gold and physically store it in Hong Kong or Switzerland if the concern is being able to leave the country with it.
Only a small fraction (.00001%?) of “Chinese investors” in the world currently prefer domains to gold. 1.4B Indians also prefer gold.
Gold is an asset on Central Banks balance sheets. It is money. Domains are not money. But they are great for portability.
I’m going to go out on a limb and say gold has bottomed. These are the types of articles that typically surface at the end of a bear market.
November 6th, 2015 at 1:41 pm
Domains have counterparty risk while gold does not. If you have possession of gold it is yours as it is within your dominion and control. Domains on the other hand rely on a technology infrastructure that is not necessarily always going to be ‘on’.
Quick point to RP [above] – Gold is to protect against instability and the loss of confidence in government. Does NOT necessarily need to be inflationary.
November 6th, 2015 at 8:17 pm
Gold is recognized as an asset throughout the world, domains are not. Gold can be sold for face value, domains not so much. When the market is down, people worldwide buy gold to counteract, this doesnt hold true for domains. Domains investing is a niche investment for a extremely small community of investors, on the other hand gold is a commodity traded world wild and has been around since the begging of time…I doubt Chinese investors prefer domains over gold! Can we get your resources for this article?
November 6th, 2015 at 8:18 pm
Beginning…..sorry
November 6th, 2015 at 10:54 pm
i own domains and gold. The gold is more real but expensive to store in volume. The domains have more upside and use than gold.
November 7th, 2015 at 10:59 am
China buys another 14 tons of gold in September (around $2B), latest reserves updated:
http://www.safe.gov.cn/wps/wcm/connect/77587f00492357e0a11ba5fce82f097e/Official+reserve+assets.xls?MOD=AJPERES&CACHEID=77587f00492357e0a11ba5fce82f097e
Don’t confuse the current “paper” price of gold via the CME and the real demand/supply of gold. At the CME claims on physical gold vs actual gold available is around 300/1. That is a record.
The beauty of domains is that they are each unique and Wall St cannot create derivatives or hedging strategies to attempt to control their price
November 7th, 2015 at 7:58 pm
Great posts. One can also buy and physically store gold in the USA very inexpensively, in addition to storing it in Hong Kong or Switzerland.
In the world of domain name asset investments and China, you could also say that “8 = Gold” is the new “E = mc2.”
November 13th, 2015 at 2:12 am
Most Chinese I know would take Gold over Domain Names.
November 13th, 2015 at 2:15 am
The Chinese are buying aprox. 200 tons of Gold per month – thats works out to about $10.4 billion per month … I doubt Domain Names even do $1 billion per year in China.
November 13th, 2015 at 2:51 am
China is both the world’s #1 consumer of gold and the world’s #1 producer of gold.
China has also recently joined the World Gold council, a historic development.