Blockchain for Gold? A Controversial Plan

A former investment banker who leads the global trade group for the gold mining industry is pushing a controversial plan to track nearly every gold bar in the world with digital blockchain technology. David Tait, head of the World Gold Council (WGC), claims the plan to digitally track gold bars will increase demand for gold from major corporations and institutional investors.

“This initiative aims to enhance trust in gold, and as a consequence, unlock substantial demand,” states the WGC’s promotion for its Gold 247 initiative. 

The Council argues investors are demanding to know that precious metals products have been responsibly sourced and produced, in addition to receiving assurances that their gold is authentic. 

“The way gold is currently traded and the way the supply chain is managed needs to evolve to ensure the gold market continues to meet the expectations of end-users, the financial services community, and regulators,” claims the WGC.

But the major banks who control the electronic settling of gold trading in London are likely to view the proposal as a threat to their industry dominance. JP Morgan Chase and HSBC, the two largest banks involved in processing precious metals transactions, refused to go along with a separate plan this year to trade gold futures on the London Metal Exchange. 

The WGC is also floating the idea of a digital token that would standardize gold transactions. London, for example, trades 400-ounce gold bars, while COMEX futures traded in New York use 100-ounce bars. 

A digital token, however, is no replacement for the security and value of genuine gold. Most precious metals investors purchase gold because it is a genuine hard asset that holds its value through good times and bad. Thus, the tokenization plan would appear to have little chance of gaining traction, particularly among individual investors.