Digital gold is here. Is the trading pattern of the $930 billion gold market in London changing?

The market's cautious attitude stems from the fact that the gold market is dominated by highly traditional and risk - averse participants.

The ancient gold is undergoing a profound digital transformation.

The World Gold Council, the representative institution of the global gold industry, officially proposed a disruptive proposal last week. It plans to launch digital tokens backed by physical gold in London, aiming to completely change the way gold is traded, settled, and collateralized.

This move may inject new vitality into the world's largest physical gold trading center with a scale of up to $930 billion, but it has also sparked discussions in the market about the intense collision between tradition and innovation.

Unlocking "sleeping" assets and targeting the trillion - dollar collateral market

For a long time, gold has mainly played a static and non - income - generating role as a store of value on the balance sheets of banks and investors.

The core of this launch is a digital token called "Pooled Gold Interest (PGI)". According to Mike Oswin, the head of global market structure and innovation at the World Gold Council, who introduced it to CNBC, each PGI token will represent legal ownership of specific physical gold in London's vaults, and for the first time, it allows investors to trade fractional ownership of standard 400 - ounce gold bars.

"We hope to position gold as a financial asset on par with those digitally native bonds or cash," Oswin clearly pointed out in an interview. " (Through PGI) Pledging gold will be as simple as pledging bonds."

The core goal of this move is to activate the liquidity of gold as a financial collateral, enabling it to be conveniently used to meet margin requirements and thus enter the huge global collateral market.

"The third pillar": Remodeling the London trading pattern?

Currently, there are mainly two trading models in the London over - the - counter gold market (Loco London): "Allocated Gold", which means owning the ownership of specific gold bars; and "Unallocated Gold", which means having a claim on a certain amount of gold. This is also the most common form of global trading, but investors need to bear the credit risk of the institution.

The launch of PGI is regarded 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's vaults was 8,776 tons, worth $927.5 billion.

Oswin optimistically said that PGI even has the potential to serve as a physical settlement mechanism for gold futures contracts in the future, and its application ambition is not limited to the UK. "We are also researching how to promote it in the United States and other jurisdictions."

Revolution or gimmick? Market doubts still exist

However, this grand blueprint is not without resistance, and the market's reaction is polarized.

"True gold believers may not care at all and may even be vigilant," Russ Mould, the investment director of AJ Bell, said bluntly in an interview. He believes that the core charm of gold lies in its physical tangibility, which is a "tool against financial complexity, opacity, and leverage", while digitalization may re - introduce these risks.

This kind of doubt is not an isolated case. Adrian Ash, the research director of the gold trading platform BullionVault, even sharply commented that "this seems to be a solution in search of a non - existent problem."

The market's cautious attitude stems from the fact that the gold market is dominated by highly traditional and risk - averse participants. Previously, the blockchain database "Gold Bar Integrity Program" jointly launched by the World Gold Council and the London Bullion Market Association (LBMA) had a relatively slow promotion speed in the market, which undoubtedly casts a shadow of uncertainty over the future of PGI.

Whether it is a disruptive industry revolution or another well - received but poorly - performing attempt still awaits the final test of the market.

This article is from the WeChat official account "Finance and Economics", author: Long Yue. It is published by 36Kr with authorization.