The World Gold Council is preparing to trial a new digital representation of gold in London, with the aim of modernizing one of the world’s oldest and most conservative financial markets.
The initiative will test pooled gold interests (PGIs), which are fractionalized digital claims on physical gold, within London’s $900 billion bullion trade. If the pilot is successful, it could change how gold is traded, settled and deployed as collateral, adding a modern layer of efficiency to a centuries-old asset.
Digital claims on physical gold
Under the proposed model, PGIs will represent a co-ownership interest in gold held in segregated accounts by London’s major clearing banks and trading houses. Instead of transferring whole bars, participants would be able to move digital units instantly, cutting down on settlement friction in the over-the-counter (OTC) market.
Each interest would be structured via a trust and recorded digitally, enabling faster collateralization and potentially unlocking gold’s use in repo and lending markets.
David Tait, chief executive of the World Gold Council, said the aim is to change how investors view the metal.
According to Tait, gold is viewed as static and non-yielding by investors. However, with digitization, it can become an income-generating asset, especially for banks, where it can be used as collateral.
World Gold Council trades tradition for disruption
The move is seen as opportunity but there’s also tension about changing a centuries-old process in London’s gold market, which still clears trades largely through an opaque system of allocated and unallocated accounts.
The WGC has already tried out blockchain technology through its Gold Bar Integrity program, which it launched in collaboration with the London Bullion Market Association (LBMA) to track chain of custody, provenance and authenticity.
Many global refiners have reportedly signed up, with about 96% of those on the LBMA’s good delivery list on board, according to Ruth Crowell, LBMA chief executive. However, implementation across the supply chain has been slow.
The WGC argues that digitization will help gold compete with cryptocurrencies and stablecoins, which have offered investors liquid, blockchain-based alternatives to physical assets.
With institutional demand for digital settlement rising, proponents believe PGIs could bridge the gap between traditional bullion and emerging financial technologies.
The timing could be right
The push comes at a time of record gold prices, which have more than doubled in three years amid geopolitical uncertainty and strong central bank buying. The London over-the-counter (OTC) market, the world’s largest, clears the equivalent of $900 billion in gold trades annually; the scale of potential disruption is very high when this is taken into consideration.
Analysts say expanding gold’s role as collateral could enhance liquidity in short-term funding markets and also give investors more flexibility in deploying the asset.
Despite the enthusiasm from the WGC, not all in the bullion industry are convinced. Critics argue that gold does not require digitization to remain relevant.
“Gold is already the best performing asset class over the long run,” said Adrian Ash, director of research at BullionVault. “This feels like a solution in search of a problem.”
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Source: https://www.cryptopolitan.com/world-gold-council-digital-market-london/
