➤ Digitizing the gold market will break down barriers to trading and potentially open up the commodity to a younger generation, gold industry leaders hope.
➤ The increased transparency offered by such a digital system could elevate producers’ attention to environmental, social and governance issues.
➤ The average person doesn’t understand the ESG implications of buying gold.
The gold industry is working together on the Gold247, an initiative from the industry-backed World Gold Council that aims to make it easier to buy and sell gold digitally. The new system would allow physical gold to change ownership as easily as digital currency, while providing buyers with transparency about where the gold originated.
At the Denver Gold Forum in Colorado held in September, several of the world’s largest gold mining CEOs took to the stage to tout the initiative and its vision for the future of gold. By tracking the provenance of gold with a digital system, consumers can avoid gold associated with issues such as child labor or reckless environmental practices.
S&P Global Commodity Insights spoke with David Tait, CEO of the World Gold Council and former global head of fixed-income macro products at Credit Suisse, about his vision for digitizing gold and what it will mean for the commodity’s future. The following conversation has been edited for clarity and length.
Commodity Insights: So, why digitize gold now? Is there a new, high level of demand for this service, or is the technology just now emerging that would make this work?
David Tait: I don’t think it’s demand. No, I think that’s a coincidence.
I came from the last five years of my tenure in investment banking. I ran the macro division of Credit Suisse, responsible for interest rates, foreign exchange, all electronic businesses, and most notably, commodities. I was also the person who shut down commodities, including precious metals, at Credit Suisse.
I did that because it was too expensive, too difficult, and too clunky to use to trade effectively. The capital that I’ve been allocated by the bank to go trading in this ecosystem was better used elsewhere. So, I saved myself a quarter billion dollars by shutting down the commodities business.
Interestingly, in this role, my job is to solve for the very reasons I shut down that business. So we’ve got quite an agenda on our hands, but we will make it happen.
Do you worry that young investors who think gold is too clunky of an investment have already and will turn to cryptocurrency investments as a way to store value instead?
I think it’s quite possible that in the past few years, people have come into the crypto world and have perhaps thought of crypto as an electronic alternative to gold. However, I personally think most people who trade cryptocurrencies trade for volatility. It’s a “get rich quick” thing.
It’s been proven since the Ukraine invasion that crypto doesn’t stack up very well as a hedge. It is very much another risk asset. In those first few days, I wish to God we’d been a few years ahead of where we were and had created a digital equivalent of gold. Not a crypto asset, but a digital equivalent of gold that sat side by side on those exchanges.
The world, in one moment, saw them go in vastly different directions. An entire generation would have been converted at that moment. However, we weren’t fast enough.
Every token will be fractional. All gold will be fractionalized. The token will be a representation of gold, literally. I’m asking for the entire ecosystem, the gold ecosystem, all the banks, all the repositories, to convert that gold into a token taxonomy agreed on across the universe.
All those impediments the product has had for so many years will drop away because overnight, it’ll become a pretty easy thing to use. That’s when I think the huge institutional assets that are sitting there that have hitherto gone, “You know, it’s just too damn complex, too damn risky, too damn expensive,” will go, “It’s now got equivalency, I’m going to go play in this market.”
So, in this ecosystem, do we need to mine the gold at all, or would it be possible to tokenize resources that have proven to be underground?
I don’t know whether it’s possible to prove that it’s underground.
I do think we need to continue to mine the stuff. I mean, I really do. There’s an enormous number of people around the world reliant on it.
I think as the world depends on it, and we need to find the right way of doing it: Decarbonize mine sites and … [make] sure that what they bring out the ground is responsibly sourced. I’m very impressed by the degree of commitment to that.
Do you think the average retail consumer of gold understands the ESG implications of buying gold, such as potential association with illegal mines or companies engaged in unethical practices?
No, I don’t think the average person understands that. I really don’t. I don’t think the average person really cares, knows or understands where their gold comes from.
Are there technologies out there increasingly so that we can designate where it comes from? Yes, there are. Do I think the technology is best used to raise all standards? Yes. Choose that mine over that mine? What’s the benefit?
I’d raise the standards of all mining to a certain level that is acceptable to every person in the world such that when you walk into any institution, whether it be wholesale or retail, you know that gold exists to a certain acceptable level globally.
We need to get to that point. We don’t need further fragmentation in the gold market by choosing “that sunny place over there” or “that rainy place over there” gold. I don’t think that will serve anybody.
Let’s bring them into our ecosystem and raise their standards to a global standard, and I think you will end up in a system where the institutions of the world and regulators will have confidence.
We will be doing something awfully good for people who really do struggle with hard lives.
Source: S&P Global