Digital gold evolution: WGC launches new settlement model for bullion market
NEW YORK (September 3) The gold market is proving to be an untapped resource in the evolving digital landscape, and the World Gold Council (WGC) is hoping to bridge the gap between physical bullion and digital assets.
On Wednesday, the WGC announced the launch of its newest initiative—Wholesale Digital Gold—a transformative concept designed to enhance how gold is owned, traded, and utilized.
The initiative is based on a recently published white paper examining ways to improve the settlement process in the over-the-counter market. The paper notes that the physical gold market is currently settled through two key structures: allocated gold and unallocated gold.
Allocated gold allows for the transfer of direct ownership and title to specific gold bars. This settlement process provides holders with the certainty of gold ownership and insulates them from the credit risk of custodian banks.
Meanwhile, unallocated gold refers to a holder’s credit claim against an institution, where the unallocated account is maintained for a specific quantity of gold. As the term suggests, unallocated gold means no specific bullion is set aside for the holder; instead, the holder has a contractual right to the gold.
“Unallocated gold has traditionally provided holders with greater liquidity through deeper markets, and quick and simple settlement mechanics,” the WGC analysts said in the report. “However, the ‘quid pro quo’ for unallocated gold is that it requires holders to take the credit risk against the institution where their unallocated account is held.”
The WGC now proposes to create a third settlement process, underpinned by the development of a new digital form of Pooled Gold Interests (PGIs).
In this new venture, the WGC’s Wholesale Digital Gold would give investors access to PGIs, providing physical ownership similar to allocated gold, but with added benefits such as fractional ownership and the ability to use bullion as collateral.
“Participants in the Wholesale Digital Gold ecosystem would co-own the underlying pooled gold and issue digital fractional ownership interests in the gold, maintaining transparency and trust,” the WGC said in a press release.
“As the world’s leading gold trading hub, with the Loco London market clearing an average of 20 million ounces daily, the UK is well positioned to lead the way in improving the way gold is traded and cleared to the benefit of all market participants,” said Mike Oswin, Global Head of Market Structure and Innovation at the WGC, in a prepared statement. “Introducing a robust legal structure and innovative technology for gold ownership and settlement will only reinforce London’s role in the global gold market.”
The WGC has partnered with Linklaters to develop a new legal framework for PGIs. This framework underpins the issuance and transfer of interests in a pool of vaulted gold bars, ensuring beneficial ownership of the physical gold held in custody.
“This structure provides legal certainty and supports operational flexibility essential for innovation in precious metals trading,” said Richard Hay, Partner and UK Head of Fintech at Linklaters. “By enabling secure, transparent, and efficient digital ownership of fractional interest in gold, we are helping to unlock new opportunities for market participants and reinforcing London’s leadership as the world’s preeminent gold trading hub.”
Gold has been relatively slow to embrace the evolving digital marketplace; however, interest in digitizing physical assets is starting to attract significant attention.
The WGC is not the only organization racing to build a digital gold platform. In July, BioSig Technologies, Inc. (Nasdaq: BSGM) announced that it had raised up to $1.1 billion in financing to build a tokenized digital gold asset traded on the blockchain.
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