How the Goldback Price is Determined
Written by Jeremy Cordon, CEO of Goldback Inc.
To date, there have been well over $100 million worth of Goldbacks sold. But why do they now cost over $5? Where does the price come from and how is it determined?
The short answer is that Goldbacks trade for about double the spot price of gold.
The long answer is less understood and more difficult to explain. There are several factors that play into it, such as market demand, manufacturing, and distribution.
Ultimately, any currency’s value is determined by the market. This is true for the U.S. dollar, the yen, and the euro. It’s also true for gold bullion, bitcoin, and the Goldback. Theoretically, the value of any of these currencies could go to zero if enough people in the market decide to abandon it en masse. For example, if Bitcoin became hackable, it could drop to zero. If a volcano started spewing millions of tons of molten gold, the price of gold could drop close to zero. In fact, many fiat currencies around the world have dropped to zero.
Likewise, a sudden surge in demand could send the value of a currency soaring! We’ve seen this happen with Goldbacks. In 2020, the price of the Goldback went as high as $50 due to supply and demand. Goldback Inc. simply could not meet market demand during the initial Covid scare.
The Goldback value is heavily influenced by the price of gold. There’s also a cost associated with manufacturing and distributing the Goldback. This added value is reflected in the premium over the spot price of gold.
Like most fractional gold, the Goldback carries a “sticky” premium. Traditionally, the price of gold is known to track inflation. Since the value of the dollar is going down, it would make sense that the manufacturing and distribution costs of gold would be more appropriately fixed. In the 1980s when gold was priced around $400, the U.S. Mint released a tenth ounce Gold Eagle with a 20–40% premium. Today, those coins still have a 20–40% premium, even though the price of gold has reached $2,500. As the dollar continues to decline in value, we anticipate the premium on the Goldback to remain “sticky” at close to 100% over spot.
In order to help distributors and users, we are developing an API that can predict the value of a Goldback depending on what happens with the spot gold price. Be on the lookout for more details coming soon!
