Blockchain and the Gold Trade

June 12, 2020

As we grow increasingly used to the idea of blockchain being used in spaces that don’t explicitly relate to cryptocurrency, it can almost be easy to overlook its role in other asset trades. However, some of the most direct and straightforward applications we’re seeing do have to do with how assets are dealt back and forth between financial institutions and among investors.

Last year we discussed blockchain’s disruption of the forex market, which is ongoing and appears poised to reshape the said market in a fairly significant manner. Institutions that have begun using the blockchain to handle forex transactions have, in some cases, found that they can facilitate trades more efficiently and more affordably. Other assets and markets can likely and will see similar benefits. One thing to watch in this respect is the gold trade, which is already beginning to take advantage of blockchain technology in multiple ways.

First, there’s supply to consider. While this is not an issue in forex (or with cryptocurrency for that matter), gold and other commodities are effectively natural resources that need to be procured and verified before they’re ever circulating among traders. This process isn’t just a formality or an inevitability, either. An overview of gold as a commodity lists “supply and demand” among some of the chief factors that affect the price of gold. This makes the efficiency and validity of the supply process vital to the trade, and it’s this process that may benefit most from the blockchain.

To that point, we know that blockchain tech is already being used to fight conflict minerals. Unfortunately, precious metals and other minerals are often sourced and traded in harmful ways, which can affect circulation in a number of negative ways. Because of its very nature as an irreversible, transparent digital ledger, the blockchain can help the companies involved to ensure that they’re dealing in responsibly sourced materials. Blockchain tracking can verify a precious metal like gold from the point at which it is mined to that at which it’s traded — which doesn’t guarantee greater supply but can lead to a steadier and more exact picture of supply.

Beyond tracking the gold supply, blockchain is also beginning to be put to use in the actual trading of the metal. Various financial groups are implementing blockchain tech for this purpose already, aiming to make transactions more secure and more transparent. It would be premature to say that this is becoming the norm, but there are institutions facilitating gold investment that are doing so through the technology. And if they see some of the same success and benefits that have already become apparent with regard to some examples in forex trading, the idea will likely spread quickly.

In multiple ways, we can see that blockchain is beginning to impact the gold trade, with the commodity market as a whole likely to follow. This is ultimately one more example of the technology establishing much more widespread utility than we might have anticipated in years past.