London Taps Blockchain to Save Its Gold Trade Supremacy
London's dominance over the global gold trade is under threat due to shifting demand towards Asia. To protect its position, the UK's Financial Conduct Authority (FCA) is exploring a framework for 'tokenised' gold, where digital tokens represent ownership of physical gold held in vaults.
The city's wholesale gold market currently operates through two main systems: unallocated and allocated gold. Unallocated gold allows institutions to buy and sell large quantities without identifying or storing specific bars, but it exposes them to credit risk if the bullion bank runs into trouble. Allocated gold gives investors a better property right, but it comes with higher costs and less flexibility.
The World Gold Council and law firm Linklaters have introduced a framework called Pooled Gold Interests (PGI), which allows wholesale investors to hold beneficial ownership in pools of physical gold rather than relying on general credit claims. This bridges the gap between allocated and unallocated gold, giving investors an interest in physical bullion while making it easier to divide and transfer.
HSBC has launched a live gold tokenisation platform that creates digital representations of physical gold held in its London vaults. Institutional clients can trade these tokens through HSBC's Evolve platform, with each token representing a fraction of a troy ounce of gold.