The World Gold Council (WGC), British multinational law firm Linklaters and Hilltop Walk Consulting have unveiled a “pioneering vision” to transform the global gold market through the introduction of a Wholesale Digital Gold ecosystem – a transformative concept to enhance how gold is owned, traded and used.

The WGC explains that, in today’s wholesale market, over-the-counter gold trades are settled in two main structures.

The first is allocated gold, which involves direct ownership of specific physical gold bars but is operationally complex. The second is unallocated gold, which has higher liquidity and lower costs, but may expose investors to the credit risk of the institution where the account is held.

Following on from the Financial Markets Standards Board’s (FMSB’s) Precious Metals Spotlight Reviews, and in consultation with key industry participants; the WGC and its partners propose a third way – the Wholesale Digital Gold ecosystem – to settle gold, bridging the gap between the first two structures.

The council notes that the ecosystem it proposes will make use of pooled gold interests (PGIs), which it explains, will be electronically transferable fractional beneficial interests in gold bars that are stored in approved vaults.

PGIs, it notes, combine the “best of both worlds” by providing physical ownership, just like allocated gold, but with new benefits.

These benefits include the broader and more simplified use of gold, including as collateral; ownership of an interest in a pool of vaulted gold bars – even in small, fractional amounts; and easy and secure transfer of gold interests between parties.

“Wholesale Digital Gold is a vision to transform the way gold is owned and traded.

“The UK government’s recent publication on Financial Markets Digital Strategy highlights the importance of digitalising wholesale markets to drive efficiency, resilience and innovation – an ambition that closely aligns with our own,” says WGC market structure and innovation global head Mike Oswin.

“As the world’s leading gold trading hub, with the Loco London market clearing an average of 20-million ounces daily, the UK is well positioned to lead the way in improving the way gold is traded and cleared to the benefit of all market participants.

“Introducing a robust legal structure and innovative technology for gold ownership and settlement, will only reinforce London’s role in the global gold market,” he continues.

The Wholesale Digital Gold ecosystem is designed to be technology-neutral, supporting initiatives such as the WGC and London Bullion Market Association’s Gold Bar Integrity programme.

To support this innovation, a new legal framework has been developed by Linklaters.

This framework underpins the issuance and transfer of interests in a pool of vaulted gold bars, ensuring beneficial ownership of the physical gold held in custody.

Core participants in the Wholesale Digital Gold ecosystem would co-own the underlying pooled gold and issue digital fractional ownership interests in the gold, maintaining transparency and trust, the WGC explains.

“We are proud to support the WGC and the broader industry in articulating their exciting vision for a digital gold market through the development of a new legal structure to support that vision,” says Linklaters partner and fintech UK head Richard Hay.

He says this structure provides legal certainty and supports operational flexibility, which is essential for innovation in precious metals trading.

“By enabling secure, transparent and efficient digital ownership of fractional interest in gold, we are helping to unlock new opportunities for market participants and reinforcing London’s leadership as the world’s preeminent gold trading hub,” he says.

"We were delighted to build on our record of delivering innovation in the financial markets through the design of a novel legal infrastructure supporting the vision for Wholesale Digital Gold,” adds Michael Voisin from Linklaters.

The WGC is inviting market participants, regulators and technology providers to engage with this initiative and help shape the future of the gold market.