Digitalisation is transforming the financial services industry, and the gold market is not immune, writes Andrew Naylor, World Gold Council regional chief executive officer APAC (ex China) and public policy.
In order to optimise and enhance our industry, it is essential that we reap the full benefits of digitalisation. Gold247 – the World Gold Council’s vision for the gold industry – is underpinned by digitalisation and comprises three overarching objectives.
First, the gold industry should operate with the highest integrity and proven provenance. Today’s consumers and investors demand to know where their gold comes from, who produced it, and whether it has been responsibly and sustainably sourced.
Gold needs to have unimpeachable credentials, as maintaining the trust and confidence of consumers, investors and regulators is key to broadening participation and unlocking latent demand.
Second, physical gold has to be fully accessible, so everyone can benefit from its wealth-enhancing, risk-mitigating and stabilising role as a financial asset. This includes gold being traded 24 hours a day and being fully accessible through contemporary channels such as digital investment accounts or simply your iPhone.
Third, we want to ensure gold is fully fungible, which means we should be working to harmonise regional silos, reduce market fragmentation, and ensure local and regional gold markets are fully interoperable.
A major focus is gold bar integrity, and the World Gold Council has been working in partnership with the LBMA on a gold bar integrity program. Using distributed ledger technology, the aim is to expand the trusted, closed-loop ecosystem that currently exists for the 400oz gold bar market to also incorporate smaller bars, including kilobars.
Over time, this will help consumers, investors and market participants to have further confidence that their gold is authentic and has been responsibly produced and sourced.
Earlier in 2022, the World Gold Council and LBMA convened representatives from the global gold supply chain to pilot using distributed ledger blockchain technology by implementing a secure, confidential, digital supply chain solution for the gold industry.
Tracking gold bars throughout the chain will ensure responsible gold sourcing and product integrity, which will improve trust in the asset class.
Our research shows trust in gold is a barrier to investment. We believe greater transparency and integrity will ensure gold continues to play a major role in the financial system, and will encourage new investors to allocate to gold. The Gold Bar Integrity Programme is the critical foundation needed for further market reform and digitalisation.
Digitalisation will also expand access to gold, in the retail and institutional markets. In Singapore, for example, there are many ways to buy gold, many of which are anchored on digital technology. One of the country’s leading retail banks offers gold investment accounts, a gold certificate program, and a retail and buyback facility for gold bars and coins.
There are many non-bank financial institutions offering digital gold products. Consumers can buy physical gold with ease through a digital channel, even in small denominations as low as a gram.
So while there are many digital gold products out there, including gold tokens, the market is somewhat fragmented. The World Gold Council vision is that digitalisation can transform the market ecosystem globally.
We’re not talking about “paper gold”, but physical gold traded digitally or on digital platforms. But for this to be truly transformative, the industry has to come together to avoid fragmentation, develop a common taxonomy, and deploy interoperable solutions.
The digitalisation of the gold market – at its essence creating an interoperable and internationally accepted digital twin of gold bars – will ensure the integration of FinTech, the future banking system, and the gold market, expanding access to physical gold as an asset class. Consumers will have choice on how to invest in gold, and greater choice will lead to greater demand.
With the technology now at our disposal everyday, we’ve never been better placed to bring the global gold industry into the digital era. If we’re able to combine our efforts on this agreed future vision, I’m confident that gold will remain as relevant as ever in the 21st century.
Australia is included in the World Gold Council’s Gold Demand Trends report. At almost 30 tonnes of annual demand, it is one of the largest markets in the world on a per-capita-gold-consumption basis.
When we think of Australia and gold we almost always think of our role as among largest (sometimes the largest) producers. Australia is also a major consumer market for gold, but there is still room to grow.
As the market starts to fully embrace digitalisation, new products will ensure that new generations of Australians will continue to benefit from gold’s financial properties – its potential to protect wealth, as a portfolio diversifier, as a hedge against inflation, and as a large and liquid asset class.
This feature appeared in the December issue of Australian Resources & Investment.