The gold market has proven to be an untapped resource in the evolving digital landscape, and the World Gold Council (WGC) hopes to bridge the gap between physical gold and digital assets.

On Wednesday, the WGC announced the launch of its latest initiative: Wholesale Digital Gold, a revolutionary concept designed to improve the way gold is owned, traded and used.



The initiative follows a recently published white paper that examined ways to improve the settlement process in the OTC market, noting that the physical gold market is currently settled through two key structures: allocated gold and unallocated gold.

Allocated gold allows the transfer of direct title and ownership to a specific gold bar, a settlement process that provides holders with certainty of ownership of the gold and insulates them from the credit risk of the custodian bank.

Unallocated gold refers to a credit claim held by a holder against an institution that maintains an unallocated account with a certain amount of gold. As the name suggests, unallocated gold means that no specific gold bar 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 mechanisms,” WGC analysts said in the report. “However, the ‘quid pro quo’ of unallocated gold is that it requires holders to assume the credit risk of the institution holding their unallocated account.”

The WGC is now proposing the creation of a third settlement process, developing a new digital form of Pooled Gold Interest (PGI).

Under this new initiative, WGC’s wholesale digital gold will provide investors with access to PGI, offering physical ownership similar to allocated gold, but with additional benefits such as fractional ownership and the ability to use gold bullion as collateral.

“Participants in the wholesale digital gold ecosystem will jointly own the underlying pooled gold and issue digital fractional ownership interests in that gold, maintaining transparency and trust,” the WGC said in a press release.

“As the world’s leading gold trading hub, with an average of 20 million ounces of gold settled daily in the London gold market, the UK is well-positioned to lead the way in improving the way gold is traded and cleared, benefiting all market participants,” Mike Oswin, WGC’s global head of market structure and innovation, said in a prepared statement. “Introducing sound legal structures and innovative technologies for gold ownership and settlement will only strengthen London’s role in the global gold market.”

The WGC, in collaboration with Linklaters, has developed a new legal framework for PGI, which underpins the issuance and transfer of collective interests in gold bullion vaults to ensure beneficial ownership of the physical gold in custody.

Gold has been relatively slow to embrace the evolving digital market, however, interest in digitizing physical assets is starting to gain significant traction.