Blockchain could add lustre to gold market

NEW YORK • The blockchain revolution is gunning for the gold market.

Public online ledgers that emerged from the explosive markets for bitcoin, a virtual currency, have already drawn the attention of businesses from banks to retailers which see blockchain systems as a revolutionary way to verify and record transactions.

Now, companies including exchange owner CME Group, IEX Group spin-off TradeWind Markets and financial technology firm Paxos are rolling out similar platforms to bring gold into the digital age.

About US$27 billion (S$37 billion) of gold changes hands every day in over-the-counter markets where settlements can sometimes take days, leaving price risks for buyers and sellers.

Using blockchain promises more transparency and security and speedier deals. It could also attract new participants at a time when investors are souring on gold-backed exchange- traded funds (ETFs), a key source of growth in physical demand over the past decade.

Ms Ebele Kemery, head of energy investing at JPMorgan Asset Management, said: "Digital gold would take market share away from other gold instruments: futures, physical gold bullion, gold ETFs."

"(This is) another avenue for where investors can look to find value," she said.

Bitcoin, the first instrument to use blockchain, has more than quadrupled this year to over US$4,000. The cryptocurrency surpassed the price of gold for the first time this year.

CME Group, the world's largest exchange owner, teamed up last year with Britain's Royal Mint to create a bullion product called Royal Mint Gold (RMG). CME worked with blockchain security company BitGo to provide a "fast, cost-effective and cryptographically secure method" of buying, holding and trading the precious metal. The RMG trading platform is being tested with financial institutions.

TradeWind, backed by Sprott, a money manager focused on precious metals, is using blockchain for an electronic platform that will match buyers with sellers of gold stored in any London Bullion Market Association-approved vault. And Paxos built Bankchain Precious Metals, a blockchain settlement service to allow for the instantaneous transfer of payments and ownership of the bullion stored in various vaults in London.

Still, blockchain will not solve any problems related to the physical delivery of gold, said Mr Adrian Ash, a research director at BullionVault.

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A version of this article appeared in the print edition of The Straits Times on August 18, 2017, with the headline 'Blockchain could add lustre to gold market'. Print Edition | Subscribe