The gold industry is ready to embrace blockchain-based gold trading to attract new investment, executives said at the Denver Gold Forum conference in Colorado this week.
The Gold247 initiative from the World Gold Council, an industry association, aims to increase transparency and integrity in gold markets and allow a broader array of investors to buy and sell the yellow metal as quickly as cryptocurrency. The World Gold Council is creating a database that will allow customers to view the gold's chain of custody, provenance and more in an attempt to make investments in responsibly produced and sourced gold more accessible. The industry hopes the new trading system will help buyers avoid gold associated with nefarious practices such as child labor or reckless environmental damage.
"The sheer opportunity for some to be able to buy gold for the very first time is going to change demand more than people can possibly imagine," World Gold Council CEO David Tait told S&P Global Commodity Insights in an interview. "This is literally opening a door that people have not been able to get through before and I think that makes a massive difference."
Randy Smallwood, president and CEO of Wheaton Precious Metals Corp. and chair of the gold council, told conference attendees that one of his daughters was actively investing in cryptocurrency. The precious metals streaming executive said he wants her to first think of gold as a stable place to invest, but the industry has done little to modernize how people trade in gold for many years, and its appeal is not apparent to many investors.
"Her actual comment was, 'How do I buy gold?' I looked at it [and told her,] 'I guess you have to go to one of the bullion stores,'" Smallwood said. "You know, that's not good."
Smallwood noted that investing in gold-backed exchange-traded funds is another option, but the fees are more onerous than in the cryptocurrency world.
"That's when it became apparent that we're missing the boat in terms of what we are supplying, especially to this younger generation," Smallwood explained.
Building trust
A lack of trust in gold is a major obstacle for retail investment in the asset, Newcrest Mining Ltd. CEO Sandeep Biswas said during a presentation. The successful rollout of the Gold247 initiative will be essential to earning that trust, and the gold industry sees an opportunity to capture a large part of the market, Biswas said.
"In gold, we're really behind the eight ball, with 48% of retail investors citing a lack of trust as why they've not invested," Biswas said. "Imagine if you could convert them into buyers and how they would expand the market for gold."
Gold247 focuses on increasing investors' perception of gold's integrity, accessibility and fungibility. By digitizing gold, the industry hopes to make it easier for investors to trade the metal and increase trust around sourcing and other aspects of gold investment.
As part of the push to transform the sector, the World Gold Council invested in aXedras. The Swiss company has developed a blockchain-based technology that can document gold from the mine to the end user.
How it might work
The as yet unnamed gold token would essentially offer the digital flexibility of cryptocurrency but with a definitive tie to a long-recognized store of value vetted on its provenance and other factors. Smallwood said he hopes to eventually allow buyers of the digital gold token to push a button on their devices and see the physical gold delivered to their home.
While Gold247 uses similar technology to that which enables cryptocurrencies, the initiative does not aim to compete directly with bitcoin.
"We're trying to talk about something that's got serious substance and backing behind it," Smallwood said. "We think of it more of a store of value or a measure of value, not a highly volatile, high beta asset that has no foundational value."
Newmont Corp. President and CEO Tom Palmer told attendees at the Denver Gold Forum that he envisions people using their phones or watches to buy a cup of coffee with a gold token. Colorado-based Newmont is the world's largest gold mining company.
"I think that's a very real possibility in a five- to 10-year time frame," Palmer said.
The industry knows it could have its own share of cryptocurrency-style problems, such as potential theft through hacking.
"There's a guarantee we're going to have some hiccups. Nothing like this ever goes totally smoothly," Smallwood said in an interview. "We're not scared of making those mistakes, but we must make sure that we stay focused on learning from them and moving forward."
Not another bitcoin
The move also aims to make gold a more relevant asset in a world of digital-based assets such as cryptocurrency. With Gold247, the industry hopes to make buying gold more accessible to younger generations.
While many speculated that cryptocurrencies such as bitcoin could one day replace gold as a safe-haven investment, the gold industry has been largely dismissive of such claims. A recent collapse of bitcoin prices and the digital currency's tendency to follow broader equity shifts bolster the case that gold is a more reliable store of value, Smallwood said.
A new generation of investors were excited about the return profile promised by cryptocurrencies such as bitcoin and were driven to the assets by a fear of missing out on significant returns, said Joe Cavatoni, chief market strategist for the World Gold Council. However, what they thought was a modern entry into a safe haven has proven to be a risk asset, he added.
"I think they're learning that there's a place for that asset in their portfolio, which is for risk and return, so chase it," Cavatoni said in an interview at the Denver Gold Forum. "It's really amazing technology, but there's also a place for gold in their portfolio, which is to hold on to it."
In some ways, however, executives are also eyeing the developing technology as a way to take up the mission to create a new sort of global currency, just as many envisioned bitcoin could be. The push to digitize gold supply is an opportunity for the industry to participate in a "very fungible currency that no politician can print," Barrick Gold Corp. President and CEO Mark Bristow said during a presentation.
"I think we need that in the world today," Bristow said. "We'll get there, and it's an exciting venture."
The World Gold Council is working to get as much early buy-in as possible for the Gold247 initiative, informing various stakeholders, including miners. Smallwood said he envisions miners offering digital gold as dividends and other actions that could encourage usage among younger investors.
"If we don't embrace this, no one will," Smallwood said. "The end objective is that I hope that my daughter, when looking for a stable place to put her net worth, as opposed to a highly volatile medium, will consider gold as opposed to some branded stablecoin."
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.
