Digital gold is here—Is the $930 billion London gold market about to change?

The World Gold Council has launched a groundbreaking digital token backed by physical gold, called PGI, aiming to bring the traditional London gold market into the digital era. This innovation allows investors to hold fractional interests in standard gold bars, making gold as convenient as bonds for trading, settlement, and collateralization, targeting the trillion-dollar global collateral market. Although the Council seeks to activate "dormant" assets, traditional gold believers question whether digitalization deviates from gold's essence as a safe haven.

Written by: Long Yue

Source: Wallstreetcn

The ancient gold market is undergoing a profound digital transformation.

This Wednesday, the World Gold Council, the representative body of the global gold industry, officially proposed a disruptive initiative to launch a digital token backed by physical gold in London, aiming to fundamentally change the way gold is traded, settled, and used as collateral. This move could inject new vitality into the world's largest physical gold trading center, valued at $930 billions, but has also sparked intense debate about the clash between tradition and innovation.

Unlocking "Dormant" Assets, Targeting the Trillion-Dollar Collateral Market

For a long time, gold has played a static, non-yielding role as a store of value on the balance sheets of banks and investors. According to World Gold Council CEO David Tait, as told to the Financial Times, gold must be digitized to expand its market reach.

The core of this launch is a digital token called "Pooled Gold Interest" (PGI). According to Mike Oswin, Global Head of Market Structure and Innovation at the World Gold Council, speaking to CNBC, each PGI token will represent legal ownership of specific physical gold in London vaults, and for the first time, investors will be able to trade fractional ownership of standard 400-ounce gold bars.

"We want to position gold as a financial asset on par with those digitally native bonds or cash," Oswin stated in an interview. "(With PGI) pledging gold will become as simple as pledging bonds."

The core goal of this initiative is to activate the liquidity of gold as financial collateral, making it easy to use for meeting margin requirements and thus entering the vast global collateral market.

The "Third Pillar": Reshaping the London Trading Landscape?

Currently, the London over-the-counter gold market (Loco London) mainly operates with two trading models: "Allocated Gold," which means ownership of specific gold bars; and "Unallocated Gold," which means a claim to a certain amount of gold—this is the most common form of global trading, but investors bear the institution's credit risk.

The launch of PGI is seen by the World Gold Council as building the "third pillar" of market trading. According to data from the World Gold Council, as of June 30 this year, the total amount of gold stored in London vaults was 8,776 tons, valued at $927.5 billions.

Oswin is optimistic, stating that PGI could even serve as a physical settlement mechanism for gold futures contracts in the future, and its ambitions are not limited to the UK. "We are also exploring how to roll this out in the US and other jurisdictions."

Revolution or Gimmick? Market Doubts Remain

However, this grand blueprint is not without resistance. The market's response has been polarized.

"True gold believers may not care at all, or may even be wary," said Russ Mould, Investment Director at AJ Bell, in an interview. He believes the core appeal of gold lies in its physical tangibility, serving as "a tool to counter financial complexity, opacity, and leverage," and that digitalization may reintroduce these very risks.

This skepticism is not unique. Adrian Ash, Research Director at gold trading platform BullionVault, commented even more sharply, "This seems like a solution in search of a problem that doesn't exist."

The market's cautious attitude stems from the fact that the gold market is dominated by highly traditional and risk-averse participants. Previously, the World Gold Council and the London Bullion Market Association (LBMA) jointly launched the blockchain database "Gold Bar Integrity Program," but its adoption in the market has been relatively slow, casting uncertainty over the future of PGI. Whether it will be a disruptive industry revolution or another attempt that garners applause but not adoption remains to be seen by the market.