JOHANNESBURG (miningweekly.com) – The value of gold as an asset has never been clearer, yet the gold industry finds itself at a fascinating crossroads, the World Gold Council reports.

The advent of new technologies, including blockchain, decentralised finance and cryptocurrency is having a transformational effect on the financial markets that gold operates in, the council adds in a paper entitled ‘A New Golden Age’.

A new age of easily accessible, yield-bearing digital assets puts traditional assets under the spotlight, potentially disrupting their financial status. But at the same time, these innovations create previously unimaginable opportunities for gold to thrive as the ultimate physical and digital asset.

The results could be game-changing for the gold industry, increasing trust in gold markets, and recreating the metal as a fungible and highly liquid digital asset capable of powering the financial markets of the future.

“For the gold industry, simply digitalising current practices isn’t enough,” Simone Ferriani, Professor of Entrepreneurship and Innovation at Bayes Business School believes.

The real breakthrough will come from redefining the boundaries of innovation, it is contended.

Envisaged is how digitalisation could re-orientate the gold industry in the years ahead.

With insight from a dozen leaders and innovators from within the gold industry and across the fields of finance, blockchain and real-world asset tokenisation, alongside specialists at The Future Laboratory, the potential future use cases for digital gold are explored.

As is now uppermost of mind, the gold market, besides being large and global, is thriving, with the council estimating that physical gold holdings by investors and central banks are worth around $5.1-trillion.

Gold’s trading volumes averaged a record $329-billion a day during the first half of this year.

In this sense, the gold market is more liquid than several major financial markets, including the Dow Jones Industrial Average, while trading volumes are on par with ten-year US Treasuries and exceed the most traded US equities.

During the past half century, the price of gold in US dollars has increased by 8% on an annualised basis – a performance comparable with equities and higher than bonds.

During the current period of economic instability, gold has also reinforced its credentials as a safe-haven asset and a great diversifier in mixed portfolios, with 49% of financial advisers agreeing this is a strength.

In June, the European Central Bank revealed that gold had overtaken the euro to become the second-largest global reserve asset after the US dollar.

Gold plays a crucial part in technology and healthcare products, while levels of recycling of gold make it one of the most circular assets in the world.

“In general, just about every ounce of gold that has ever been mined is still being used. It’s as close to 100% recycling as you can get, I think that’s something to be proud of as an industry,” Wheaton Precious Metals CEO Randy Smallwood points out.

Yet, despite all of this, there are challenges facing the gold industry. The fact that gold is not considered to be a high-quality liquid asset or a financial instrument in many jurisdictions means it doesn’t receive the same level of regulatory scrutiny as other investment products.

Managing physical gold custody can also be complex because gold comes in a range of different sizes and purities.

A perception prevails among some institutional investors and treasury departments that other assets are easier to manage.

Moreover, unlike asset classes such as bonds and property, gold doesn’t provide a regular income. This is cited by 54% of financial advisers, who say the fact that gold does not pay coupons or dividends hinders its investment potential.

Now, digitalisation of the gold industry is seen as creating an opportunity to confront these challenges while reinforcing the traditional strength of gold, potentially transforming it into a fungible, highly liquid modern digital asset.

“Digitalisation holds great potential for the future of gold as a digital asset, creating transformational opportunities for the use of gold in financial markets and in the lives of retail investors,” the report emphasises.

“At the heart of the opportunity are two divergent directions for gold, both of which could be realised simultaneously.

“On the one hand, robust and efficient digital gold ecosystems could supercharge the ability of institutional and retail investors to leverage the traditional strengths of gold, namely, its safe-haven status and long-term store of value.

“Digitalisation could unlock the ability to buy gold direct from a vault, instantly collateralise gold to secure investments and enable atomic settlement or instant location swaps, with the interoperability to seamlessly move between gold and any other digital asset.

“In parallel to this, digitalisation could also offer the potential to re-invent gold as a digital asset.

“While all of these potential ‘what if…’ futures could have a dramatic impact on the gold industry, the starting point for any of these innovations and scenarios will be the establishment of a range of common and globally accepted technology protocols, and the creation of robust legislative and regulatory frameworks that govern the ownership and settlement of gold in physical and digital forms. It is only by working together as an industry to create these essential building blocks that we can start to unlock the game-changing possibilities for gold as a modern digital asset,” the report concludes.