WGC’s big game plan: Digitalisation of the entire global gold ecosystem

The digitalisation of the gold ecosystem and arriving at a standardized unit for gold in the digital space is one of the key agenda of the future of the World Gold Council (WGC). David Tait, WGC’s Chief Executive, elaborates on this agenda and shares its aim in an exclusive interview with business line during his India visit. Excerpts:

How successful have you been in the last four years in bringing institutional monies to gold?

Very successful. Yes, part of my mission at WGC is, and has been for the last four years, to convert the institutional world to the merits of holding gold. And much of the work that I’ve done over the last four years with the Bank of England and the precious metals working group has been to lower those barriers. Such that institutions can invest in gold without too much of a capital burden. It’s expensive to invest in gold compared to other asset classes; it just is. And so they steer away from it to get a better ROI elsewhere. If I can lower those barriers, which is what we’re working so hard to do in the background, the institutional money, of which there is an awful lot not invested in gold, will come to gold. And I think that bodes very well for demand and the price of gold going forward.

So is there an unfinished agenda on this front?

The biggest thing on my agenda going forward is the digitalisation of gold. We’re looking to digitalise the entire ecosystem. From that digitalisation, you can create many products. We are looking to arrive at a standardized unit of gold, and it’s through an algorithm that you translate all the different types, shapes, and sizes, and you standardize gold at that layer. From that digital layer, you create different products.

What could be the benefit from such a strategy of standardized units of gold on a digital layer?

With the digitalisation of gold, the products that come from that will make gold useful to investment managers and asset managers around the world, where it hasn’t been before. It will be used for different forms of lending and collateralisation, and for the very first time, gold is not used as collateral; it’s just impossible to use it in the London markets.

So are you looking to tokenise gold and parcel it out to institutional players?

It’s not tokenisation; many people use that phrase, and it’s a much-used, ill-informed phrase; it’s a catch-all for everything. I don’t like it. But is it possible to create an industry product called a “token” from that digital ecosystem that we create? Absolutely. Would it be trusted more than any other token ever produced? I hope so. It’s an industry one, and why not. But the magic of it is that you can track it back to the provenance database, which is what people have always wanted for the very first time, and have something that’s absolutely bulletproof from end to end.

Could you elaborate on the provenance database part?

Last March, the LBMA and WGC launched a global database for all, and I hesitate to use the phrase, but good gold, responsibly sourced gold, LBMA-good delivery, India-good delivery, China, etc. This database is slowly but surely being populated. We launched it together. WGC invested in a company called Exodus, a Swiss-based company. It’s a blockchain company, and its database essentially produces, I’d say birth certificates for gold bars essentially, that contain their provenance. There’s a compulsory field and an optional field, and all new gold will eventually go into this database. I expect all ETF gold to go into this database. But imagine a future where all good delivery lists and all good gold are here. So any one of us can check the authenticity, shall we say, of a gold bar. The fact is, it’s not duplicate; it is what it is. It came from where you think it has. That database is up and running. And I’m slowly but surely getting my miners, which are the people behind me, into the database; we already have refiners we already have logistics companies into it. Think big, but that database will eventually become so ubiquitous, I hope, that when you next go and buy gold and want to check the place to go, imagine that’s the cornerstone.

So you’re not looking to create a stablecoin on gold?

No, I’m not trying to create that for the World Gold Council or anyone else. I’m trying to create an equivalent of the physical matter such that it can cross borders and be known across the world as gold. And we all recognize it; we all have the same product in our wallets and in our lives. We don’t think of it like you’ve got that shape and size, and how do institutions just trade euros, Swiss francs, gold, equities, and bonds. You won’t look at gold and go, how do I figure this out? I’ve got six-hour delivery versus payment problems; I’ve got all these IWA issues; how do I deal with all this? You’ll just be able to go: “Click send,” and the settlement will be automatic. Delivery versus payment and automatic settlement are some of the two biggest problems that keep institutions out of the market and cause delays, so yes, WGC’s goal is to try and reduce the barriers to entry such that institutions find it lucrative to trade gold and retail and institutional level find it effortless to trade going forward.

So when does the digitalisation initiative become a reality? Is there already a buy-in from institutions for the digitalisation agenda?

When I’d like it to be reality is yesterday, my board would like it to be yesterday. But in reality, there’s going to be a process, and it’s got to be equitable. It’s got to be everyone having their say; the work, as I said, of the precious metals working group has set the stage for improvement for the market and can’t go back beyond that. And so, what that looks like, we have come up with an idea. And it is a very powerful idea, and we’ve tested it intellectually. Whether the world goes for it and accepts it remains to be seen.

Do you see gold outperforming the returns that the equity markets are going to deliver this year?

Gold is a fantastic hedge to equity declines. But equity should be coming down, they’re not. And the trader in me says, don’t ignore the simple facts of what’s going on here. So, I think that the inverse correlation that we’ve had before between equities and gold is not really holding at the moment. They’re both going higher. And I think that’s confusing a lot of people. So, I wouldn’t look to equities for a guide. I think a lot of people have been excluded from the market because they panicked and are now chasing it back in buying small bits, you know, that classic thing. And I think people are very content to hold both in a portfolio.

Published on February 22, 2023

Related articles