Tue, Aug 22, 2017 - Page 9 News List

New currency in race to remake one of world’s oldest markets

Financial companies are starting to use blockchain technology to instantaneously clear gold transactions, but concerns remain over iussues like delivery and storage

By Luzi Ann Javier and Susanne Barton  /  Bloomberg

Illustration: Yusha

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 who see blockchain systems as a revolutionary way to verify and record transactions.

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

About US$27 billion of gold changes hands every day in over-the-counter markets where settlements can sometimes takes days, leaving price risk for buyers and sellers.

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

“Digital gold would take market share away from other gold instruments: futures, physical gold bullion, gold ETFs,” JPMorgan Asset Management head of energy investing Ebele Kemerysaid in a telephone interview on Aug. 9.

Using the technology to trade the precious metal would create “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 more than US$4,000. The cryptocurrency this year surpassed the price of gold for the first time.

CME Group, the world’s largest exchange owner, last year teamed up with the UK’s Royal Mint to create a bullion product called Royal Mint Gold (RMG).

CME, according to its Web site, 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 now being tested with major financial institutions and will be offered to customers by the end of the year, CME said.

That is in line with a timetable set in November last year, when the exchange first announced the plan. The product, which is geared toward institutional and retail investors, will be backed up by as much as US$1 billion of bullion stored at the mint, the exchange said.

TradeWind, backed by Sprott Inc, a money manager focused on precious metals, is using blockchain for an electronic platform that would match buyers with sellers of gold stored in any London Bullion Market Association-approved vault.

TradeWind also provides a distributed ledger that would handle trade settlement, account management and record-keeping.

The company expects to launch the product late this year or early next.

Paxos built Bankchain Precious Metals. It is a blockchain settlement service to allow for the instantaneous transfer of payments and ownership of the bullion stored in various vaults in London, chief executive officer Charles Cascarilla said in a telephone interview.

In a pilot test with Euroclear, before its partnership with Paxos was dissolved, Bankchain cleared more than 100,000 transactions with participants, including Citigroup Inc, Societe Generale SA, Barrick Gold Corp and INTL FCStone, according to a statement in April.

Paxos, which built the infrastructure, conducted another test, this time involving the actual movement of US dollars through the US Federal Reserve and the ownership of gold in London vaults, proving that the system is ready to process instantaneous settlements, Cascarilla said.

This story has been viewed 2546 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top