Gold has become sought after once more. Jumping by one-fifth against the pound in the five hours it took for the Brexit bombshell to burst on 24 June, gold has since risen further as the pound slumps to three-decade lows, reaching £1,060 per ounce – a level only exceeded in the global financial crisis.
But financial insurance cuts both ways, as many of summer 2011’s buyers learnt to their cost when stock markets recovered. By the end of 2015 gold prices had fallen over 40 per cent, and some coin retailers went to the wall while many online outlets and dealers tried to promote Bitcoin. The world’s largest online precious metals exchange, BullionVault, turned to drink. Specifically, to maturing Scotch whisky.
Originally inspired by the peer-to-peer platform of Betfair, where sports fans sidestep the bookmaker’s profit margin by laying and backing odds directly with one another, BullionVault lets private investors of any size buy and sell physical gold and silver already delivered inside vaults. Instead of paying the fabrication, shipping and retailing costs of gold coins, they trade grams of fine gold held inside warranted-quality Good Delivery bars – the large bars traded by central banks.
Under English law, each client’s gold is the subject of a bailment (related to Medieval Latin’s bajulare, to carry or care for), meaning they place it into BullionVault’s care but retain full title and can withdraw their property.
BullionVault’s 61,000 users across 175 countries now own more than £1.2bn of physical gold between them, plus another £300m of silver, stored in their choice of London, New York, Singapore, Toronto and – most popular – Zurich. Given this success, could BullionVault’s model of bailed goods being traded P2P online be applied to other tangible assets?
Last year the French drank 40 times as much Scotch as they did Cognac. Mexico in 2015 spent nearly as much on Scotch as it did on tequila, while Japan’s own whisky industry relies on Scottish supplies of new spirit, buying 82 per cent of all Scotch exported younger than three years old since 2010. The unsung workhorse of this £4bn industry is blended Scotch. Typically mixing 60-70 per cent of a plainer grain whisky with 40-50 different single malts, this smoother drink accounts for nine out of 10 bottles of Scotch sold. According to the broking data collated by the Scotch Whisky Industry Review, Scotch still in the barrel sold at eight years old has on average doubled after all costs over the last decade, and more than tripled if sold at 12 years old. Unlike other tangible assets, such as real estate, collectible cars, stamps, fine wines and indeed precious metals, new buyers can wind back the clock and acquire young spirit at the same starting prices.
Until last year there was no access for investors outside the Scotch industry (small distillers’ cask programmes are more for gifts, and roll all final costs and prices into your initial outlay), but WhiskyInvestDirect now applies BullionVault’s trading and custody software to this singular asset. Investors can buy and sell maturing Scotch, bailed in the same specialist warehouses as the big distillers use. To avoid any chance of ‘double-counting’ (the biggest risk facing owners of property in third-party care), WhiskyInvestDirect also repeats BullionVault’s public reconciliation of the independent warehouse lists with its client records.
As with gold, future prices are not guaranteed, and – Brexit’s immediate threat to exports aside – a downturn in emerging economies could slow or dent the industry’s underlying growth. But no other UK industry finds such ardent buyers abroad. Adrian Ash is head of research at both BullionVault and WhiskyInvestDirect
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