One of the largest bullion dealers in London, HSBC Holding, has launched tokenized physical gold trading on its single-dealer platform. The new capability will keep ownership records of the physical gold on a distributed ledger.
The new service works with the bank’s Orion platform—which issues digital assets—and its digital custody service, slated to go live in 2024. “These services underscore HSBC’s commitment to the overall development of digital asset markets,” noted John O’Neill, global head of digital assets strategy, markets and securities at HSBC, in a prepared statement.
The global market for physical gold is approximately $13 trillion, based on its current market price and the estimated global reserves by the World Gold Council (WGC) trade association. Adopting digitalization is another way to increase the use of technology to document and trade gold in a way that could increase transparency, Joe Cavatoni, CEO of the WGC, tells Global Finance.
“What’s been disclosed about this in the public domain is encouraging,” he says. “An industry-adopted platform will be necessary to truly modernize the gold market. So, the most significant development will be an offering that provides clients with broad-based access to the gold market and the flexibility to trade with all players.”
The market is going through a transformation as banks, which historically played a significant role as intermediaries, step back due to capital constraints, market consolidation and cyclical issues, according to the WGC. This left the market open to new entrants like hedge funds, algorithmic traders and high-frequency trading firms.
Tokenizing physical gold is not a new concept, but having such a significant bullion bank like HSBC, which has expertise in gold vaulting and clearing, certainly is, according to Ruth Crowel, CEO of the London Bullion Market Association (LBMA). “Hopefully, this new platform will attract new and different investors to the reserve asset, leveraging on the liquidity of the Loco London,” referring to the physical gold stored in London vaults.
The first attempt to offer tokenized physical trading of gold occurred in June 2016 when blockchain startup Paxos partnered with European clearing house Euroclear, only to end the venture 13 months later.
