Blockchain Trackers Approved by London Gold Association
Gold is going digital as the London Bullion Market Association (LBMA) pushes for the modernisation of gold trading through blockchain technology. Blockchain has become the catalyst of transformation, and it’s not surprising that physical gold is finally making way for the digital gold rush. Using blockchain in supply-chain management is fast becoming one of the most effective ways to use technology. Blockchain allows for a distributed ledger technology that is immutable and transparent—significant features that will be necessary for effective tracking and a streamlined data exchange in the gold industry.
LBMA has asked all of its 144 members for ideas on how to prevent forgery and track gold effectively. This comes after news of a US refinery that accepted billions of dollars worth of gold smuggled from South America last year. LBMA’s executive board director Sakhila Mirza stated that she has received 26 proposals, with most of them pointing to blockchain as a solution. “Blockchain cannot be ignored,” Mirza said. “A lot has been done already but it’s still very paper-based. We now want to formalise it through an efficient and possibly technologically based solution.”
LBMA overseas refineries that supply more than $200 billion worth of gold and silver bars acquired from remote mines. Middlemen and recyclers then sell these precious metals to buyers around the world. Reuters reported that the tracking of gold from mines was one of the main reasons they’ve sought for proposals. In the Reuters article, Mirza noted that gold often comes from far-flung areas, bank vaults, and jewellery shops around the world. Tracking can be especially difficult because metal must be physically tagged before it can be traced. She also said LBMA needs to set up criteria and standards first before they can decide which one is a credible blockchain solution.
CNBC has laid out how blockchain can improve the gold supply chain, detailing how US-based financial tech company, Emergent Technology Holdings, has already started. The gold market is a very manual market, with most of the dealings done over the phone, email, faxes, and chat rooms. To reduce friction and transactional costs, the company has created a digital token backed by gold, where one coin is equivalent to responsibly sourced gold. Each “g-coin” becomes a digital certificate of ownership that a buyer can use for investments, wealth transfer, and payment.
Investors continue to buy gold because it’s an integral part of a diversified portfolio. FXCM’s feature on the price of gold explains how the commodity is considered by many investors as a safe investment in their portfolios. A typical (and effective) diversified portfolio has a mixture of stocks, fixed income, and commodities. Diversification is important and necessary because assets react differently to the same economic event. It’s important to note, too that in a diversified portfolio, assets don’t correlate with each other—when one rises, the other one falls. This is good for an investor because if the economy does depreciate, asset classes like gold will increase in value.
Another reason to invest in gold is that it can work as a hedge, a safe haven, and a direct investment. When gold works as a safe haven, it can protect you against possible catastrophes like the 2011 debt ceiling crisis. Gold prices skyrocket in response to a crisis. That’s also why it can serve as a hedge, which are investments that can protect your finances from risky situations. Researchers have found that gold is the best hedge against a potential stock market crash because of its price skyrockets after risky situations.
When you look at gold as a direct investment, you can take advantage of its future price increase. Some investors buy gold because they see it as a finite valuable substance. While it may not experience the highs or lows of other assets, the current global situation, with the world’s two biggest economies engaging in a trade war, make it an attractive prospect. That’s why creating an ecosystem where it can be traded in a digital environment using virtual currencies is necessary. Revolutionising the trading, settlement, and ownership of physical gold through blockchain will make a safe haven asset even safer and more secure.
AUTHOR BIO: Jeremy Davids a digital nomad with a great passion for innovation and current events. Jeremy puts this passion to use by writing tech and SEO articles for companies looking to improve their presence online. When he's not writing, he reads about the latest trends on tech or watches cat videos on YouTube.