The hidden risk: Why most gold investors don’t actually own gold

As gold prices surge, Aurelion is betting on tokenized bullion to hedge against cracks in the paper gold market.

Gold’s rally has been hard to ignore. The precious metal has climbed more than 80% over the past year, cementing its status as one of the strongest-performing assets in global markets. But according to Björn Schmidtke, CEO of gold-treasury firm Aurelion (AURE), the boom may be masking a structural weakness in how most investors actually hold gold.

That weakness lies in the dominance of “paper gold”—financial products such as exchange-traded funds that track gold prices without granting direct ownership of physical bullion.

“For most investors, buying gold means buying a promise,” Schmidtke said in an interview with CoinDesk. “They believe they own a gold bar, but what they really own is an IOU that says someone owes them gold.”

The hidden risk beneath gold’s rally

Paper gold has clear advantages. It removes the burden of storage, insurance, and transportation, making gold exposure cheap and accessible. But Schmidtke argues this convenience comes at a cost.

He estimates that around 98% of global gold exposure is unallocated, meaning investors hold claims on gold without knowing which specific bars back their investment. The system functions smoothly largely because investors rarely ask for physical delivery.

That assumption, Schmidtke warns, could be tested in a crisis.

If fiat currencies were to suffer a sharp loss of value, investors could rush to claim the physical gold they thought they already owned. In that scenario, the lack of clear ownership records could quickly turn into a logistical nightmare.

“You cannot suddenly deliver billions of dollars’ worth of physical gold overnight,” Schmidtke said. “And without clear proof of ownership, the bottleneck becomes even worse.”

Such a breakdown could lead to a divergence between physical and paper markets, with premiums on real bullion soaring while derivatives struggle to settle. Schmidtke points to previous dislocations in the silver market, where physical shortages emerged despite stable spot prices.

“We’ve seen this movie before,” he said. “There’s no reason gold would be immune.”

Tokenization as a structural fix

Schmidtke believes onchain gold offers a way to reduce these risks by formalizing ownership from the outset.

He likens the paper gold system to a real estate project where investors buy shares promising future delivery of apartments but never receive title deeds. When it comes time to hand over the properties, no one can easily determine who owns which unit, slowing delivery and creating disputes.

Tokenized gold aims to eliminate that ambiguity. With Tether Gold (XAUT), each token corresponds to a specific, allocated gold bar stored in Swiss vaults. Ownership is recorded onchain, allowing the “title” to be transferred digitally without moving the physical metal.

“The gold doesn’t need to move for ownership to change,” Schmidtke said. “That’s the key difference.”

While physical redemption would still take time, he argues that the critical risk—uncertain ownership—has already been removed. Investors can verify their allocation, and claims can be settled transparently even during periods of market stress.

Aurelion’s long-term bet

This view has reshaped Aurelion’s balance sheet.

The firm has shifted its treasury to hold Tether Gold, favoring tokenized, fully allocated bullion over traditional gold exposure. Schmidtke says the appeal lies in combining the speed and portability of digital assets with the security of physical backing.

“How you own gold matters just as much as whether you own gold,” he said.

Schmidtke believes tokenized gold remains early in its adoption cycle, particularly as institutional investors become more sensitive to settlement and counterparty risks. For now, Aurelion has no plans to sell its holdings unless prices fall to a “significant and sustained discount” relative to the value of the underlying gold.

“This isn’t about short-term trading,” Schmidtke said. “It’s about compounding value over time with durable ownership.”

The company plans to raise additional capital over the next year to expand its gold treasury. According to CoinGecko data, Aurelion currently holds 33,318 XAUT tokens, worth roughly $153 million.