Voima Weekly #30 – Gold as a Diversified Asset

Long-exposure photograph of a rocket launch, with its light trail streaking across the sky above a Florida residential neighborhood. Image: stock library.

Diversification is one of the oldest principles in investing. In the Book of Ecclesiastes, traditionally associated with King Solomon, it is written: “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land¹”. This passage is often regarded as one of the earliest expressions of the diversification principle. The idea is very similar to modern portfolio theory: since the future cannot be predicted, wealth should not be tied to a single place².

Globally, gold itself is an extremely diversified asset class, likely the most diversified in the world. An estimated over 200,000 tonnes of gold have been mined throughout human history, and today it is dispersed everywhere: in jewellery, electronics, investor’s vaults, central bank reserves, and in the homes of millions of people. For this reason, its value has never been tied to a single place, and this is precisely what enables gold’s global liquidity.

Yet when it comes to gold storage, the world has long operated almost in the opposite way. This creates an interesting contradiction: a significant share of vaulted gold is concentrated in a limited number of vaults, countries, and clearing systems. This is understandable: centralized infrastructure has brought efficiency, standardization, and liquidity.

In recent years, wealthy families and investors in particular have paid increasing attention to where their assets are legally located. In the Netherlands³ and Denmark⁴, there has been debate around taxation of unrealized capital gains. Millionaires are leaving the United Kingdom at record rates⁵, and in Sweden a large number of wealthy families moved abroad during the 1970s due to high taxation⁶. In recent years, similar trends have been observed in Norway⁷.

Property rights are not merely a contractual matter; they are also a function of legal systems, politics, and culture. The most common restrictions on ownership are implemented through taxation and inflation, around which an entire industry of lawyers, structures, and wealth management arrangements has emerged to protect assets. Rarely is ownership taken away all at once, but examples of this can be found in every generation somewhere in the world.

The importance of property rights and the location of wealth tends to increase when the economic role of the state expands. I have personally come to think that the more dependent citizens incomes become on state redistribution programs, the greater the potential pressure to regulate ownership and income through taxation. Global bond markets and long-accepted government deficits have certainly enabled debt-financed public economies, but that path has never been limitless.

For this reason, the storage of gold is not merely a question of security. It is also a structural question — and ultimately a question of liquidity. At Voima, we begin with a simple observation: gold is the same gold regardless of its form or location. It may exist as a bracelet on a wrist, in a central bank vault, at a refinery being turned into bullion, or as an investor’s wealth distributed across multiple locations. The element itself does not change. The refining and reshaping of gold has been practiced for thousands of years. The value of a bullion bar, coin, piece of jewellery, or even electronic scrap ultimately depends on the same factor: how much pure gold it contains.

Ownership does not change. It remains the same asset. Therefore, the key question for clients is not a single country, but the ability to allocate gold wherever they wish: in one country, several countries, a single vault, at home, or distributed more broadly. The basic premise is simple: it is sensible to diversify wealth. Equally important, however, is a functioning infrastructure around the metal, the ability to deposit, withdraw, and transfer it, and above all to exchange it into local currency without unnecessary friction.

Storage alone is not the key issue. What matters is that gold remains a liquid asset. A sound system is one in which the metal is clearly owned, can be diversified geographically, and can be converted into cash when needed. An asset that cannot be realized when required loses part of its significance.

Many investors have become familiar with this in recent years. In private equity funds or real estate investments, valuations may be high, but if capital is tied up for years without liquidity, its practical usability is limited. Investors typically understand this when allocating to such assets, whether through funds or startup equity. Arranging liquidity in these contexts is often difficult, both administratively and from a market perspective.

Gold has historically been the opposite: it is simultaneously a physical asset, easily transferable, and supported by a global market. Gold is therefore one of the few asset classes where diversification, liquidity, and a global market intersect.

Recently I participated in a discussion where the view was expressed that commodity investments should be concentrated in areas such as agriculture and forestry because they generate cash flow. However, agriculture and forestry are fundamentally local businesses; they are tied to local macroeconomic conditions, regulation, and markets. They are not valued globally in the same way, nor do they attract capital as broadly, because their liquidity is local and therefore more limited. One key factor behind the development of gold’s value is precisely the opposite: global liquidity.

Moreover, these assets serve different purposes in an investment portfolio. Agriculture and forestry represent long-term, operationally intensive assets that generate cash flow, whereas gold functions primarily as liquid wealth and as a form of insurance against uncertainty in the monetary system, politics, and markets.

At Voima, the majority of gold is currently stored in Finland, but metal may also be stored, for example, in Switzerland and Sweden. The geographical allocation of storage is not intended to be fixed in advance, but is continuously evaluated based on the stability of property rights, market infrastructure, and local market conditions. In addition, a portion of the metal is held in metal accounts to ensure liquidity. Clients may also have individually allocated bars, which can be collected or delivered to an agreed storage location.

In the global economy, the money supply tends to grow over time in nearly all economies. International statistics show that the amount of money has expanded for decades alongside credit and public debt⁸. When the supply of currencies grows faster than the supply of scarce assets, capital tends to flow toward assets whose supply cannot be increased at the same pace and whose value is not diluted by monetary expansion. Because of this dynamic, and due to the inherent properties of gold, I believe gold has strong long-term drivers for appreciation.

Gold has never been tied to a single place. It has moved along trade routes, crossed borders, and changed form from coins to bars to jewellery and back again. This is a good thing, because the world around us is dynamic. Gold has been part of this moving economy for thousands of years. Its role is therefore not disappearing - if anything, it is strengthening.

Currencies can be created. Gold cannot.

–Marko Viinikka
Founder, CEO
Voima Gold Oy

Disclaimer: Voima Weeklies are the personal writings of the undersigned. They do not necessarily represent the official view of Voima Gold Oy or any other company, nor do they constitute investment advice or a recommendation to purchase securities.