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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, digi...

Digitalisation could re-orientate gold industry, World Gold Council highlights

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