Harnessing the full potential of gold
Critics of gold as an asset class have been quick to point out its supposed failings: it generates no cash flow, it pays no interest, and it provides no assurance of value appreciation. Notwithstanding all the negative views, gold has been in constant demand worldwide. And amid the current unsettled geopolitical environment and economic uncertainties, it is no surprise that the precious metal is continuing to draw investors into its gilded safety net.
Gold, in fact, is breaking through price ceilings to achieve record highs.
It is not only an alternative investment but also a valuable commodity widely used in industries such as aerospace, technology, and medical technology, and can be found in your desktop, laptop and flatscreen TV, all the more adding to its value.
Change is good
In line with the robust role being played by digitization and tech innovation in the financial industry, the gold market itself is now undergoing a digital transformation that is aimed at making transactions more efficient and transparent.
On his recent trip to Singapore, David Tait, chief executive officer of the World Gold Council (WGC), elucidated on his work not just to keep the body relevant but to reshape it so that it strengthens its position in the contemporary financial landscape.
Speaking with The Asset, Tait, who took on the role at WGC in November 2018, says he strongly believes that for the gold market to remain competitive and relevant, especially for GenX investors, it must undergo a digital transformation for both retail and wholesale transactions.
For Tait, a 35-year investment banking veteran who is also an independent member of the Bank of England’s FICC (fixed income, commodity and currency) Market Standards Board and chairs the precious metals working group, that means removing artificial barriers to participation and establishing a modern market infrastructure.
It has taken him a few years to turn the former clunky WGC ship around, but he is now convinced that the sometimes-painful changes made are about to revolutionize the global gold market.
To achieve his aspirations for gold to be accepted as a contemporary investment asset, Tait set out with a long to-do list to bring up to date the way gold is traded, and the way the supply chain is managed.
To begin with, the WGC had to create a blockchain-based gold bullion integrity database with support from industry participants like miners, refiners, banks and exchanges.
In line with this goal, the WGC made a strategic investment in independent Swiss IT solution provider aXedras, which provides a secure digital supply chain solution for the global precious metal ecosystem. Among its offerings, its blockchain-based Bullion Integrity Ledger enables transparency of provenance data (ESG proof) and chain of custody in real time.
As a result of the investment, the WGC, through Tait, was appointed to aXedras Group’s board of directors.
Fungibility
Tait then had to get major banks like J.P. Morgan and HSBC to sign up to the database and input their gold bars. The WGC also had to onboard more international gold industry associations and societies into the database and work with the London Bullion Market Association (LBMA) to reform and improve transparency in over-the-counter gold markets.
Tait and his team are now on a global mission of educating the industry on using the database to verify gold purchases while pushing banks to digitize and upgrade clearing, settlement, and surveillance systems for gold trading.
All of efforts will lead to the introduction of a standard digital gold unit to improve fungibility. Banks will then be able to use the new standard gold unit to develop new financial products like tokens for lending and collateralization, thereby further harnessing gold’s full potential.
“Digitalization and tokenization are essential to modernize the gold market and make it more accessible to investors now and in the future,” says Tait.
And banks are excited about it. “They really do see value here,” he adds.
Cultural shift
For the WGC to become a cutting-edge international trade association, it also needs to undergo a cultural shift. “When I took over, it was still very hierarchical and I came from more of a hedge fund, collegiate type of background. and so, I tried to instil that ethos, and began flattening the organization’s corporate structure, and it was necessary to make changes where people wouldn't change,” Tai explains.
“So, I reduced and removed corporate titles that were entrenched in the organization, and I gave the opportunity to people who had been on the periphery, mostly younger people, a voice and encouraged people to speak up and be rewarded for doing so.”
With his refreshed team and new platform in place, Tait is now aiming to pull the gold industry and its infrastructure away from its outdated, almost feudal structure to a model that is contemporary, conducive and technology-backed.
The result is Gold247, the WGC’s vision for transforming the global gold market to meet the challenges of contemporary consumers and investors.
The Gold247 transformation is focused on three pillars: integrity, accessibility and fungibility. These three pillars are underpinned by the digitalization of gold and the digital transformation of the gold market’s infrastructure. This initiative aims to enhance trust in gold, and as a consequence, unlock even further substantial demand.
The way gold is traded and the way the supply chain is managed need to evolve to ensure the gold market continues to meet the expectations of end-users, the financial services community, and regulators.
Hub potential
Asia is of great importance to the WGC as it is home to everything in the gold ecosystem – from the producers to the vast numbers of consumers.
“We have offices in Shanghai, Singapore, Beijing and Mumbai, and also recently opened in Dubai where the new office is our regional headquarters for the Middle East,” Tait says.
He also hints at ongoing discussions centred on Singapore raising its profile in the gold market to become a leading gold hub. Some WGC members have expressed the view that the gold market is still a very London-centric club.
Aside from being a hub for life sciences, technology and sustainable finance, Singapore, which hosts over 1,400 family offices, has developed into a global wealth management hub, making it a potentially strong foil for WGC’s hub plans.
Tait continues to pursue his vibrant vision for the precious metal to push its infrastructure into the 21st century and fulfil its full potential. Or perhaps what he is aiming for is for gold to return to its pure commercial roots that began thousands of years ago.
Source: https://www.theasset.com/