WGC (the World Gold Council) has recently introduced a new framework that makes it possible to modernize gold trade and adapt it to the requirements of the digital age, at the same time not losing its physical basis.
According to the council’s market analyst Joseph Cavatoni, a record-high price for gold shows how important it is to develop a system that provides market liquidity. In a recent interview, he argued that the gold market is innately physical. This physical nature is needed for financial tools to operate in a proper way.
For many years, people have been trying to introduce digital gold tokens backed by gold, however, these initiatives have failed to become popular. The issues of the gold market can’t be solved with tokens because they don’t change the way this market operates. At the same time, the WGC is going to introduce what it calls a “radical shift” that, at long last, may potentially enable the digitization of gold.
The council is proposing the concept of the “wholesale digital gold,” which can be described as a pooled gold interest. Under this model, financial institutions could possess physical gold and give participants a part of the ownership, basically creating “a collective gold pool.” Any investor can buy a share worth anywhere from $5 to $5 million, and all financial operations will be governed by institutions. What’s more, purchases could correspond to any amount of gold, not a whole bar or a custom brooch from gold, or anything like that.
Overall, gold prices are having a good year, but the project aims to increase the gold market’s efficiency even more. According to modern requirements for highly liquid assets, the yellow metal doesn’t qualify as such, even though it trades for about 205 billion a day. Unfortunately, this negatively affects balance sheets. According to Cavatoni, this new model has every chance to change that; he also believes this can intensify market participation and actually make gold a highly liquid asset, especially if it’s used as collateral in equity trading.
The WGC is going to launch a pilot program in a couple of months and is now inviting various institutions to participate. This project is still in its early stages and is only realized in the wholesale industry, however, it will be developed further by the end of this year.
The law firm Linklaters has posted a white paper on the Council’s web page explaining the details of the proposal. The Olertis team hopes that after the launch, the new WGC framework will make the gold trade easier and more transparent. There have been many attempts to digitize gold in the past, but this one is bound to succeed, given its elegant efficiency and simplicity of the solution.
