Digital Gold: How Tokenization Could Change London's Precious Metals Market

Digital Gold: How Tokenization Could Change London's Precious Metals Market

As fintech and blockchain technologies intertwine with traditional markets, gold – a symbol of stability and a safe haven for investors – is taking on new dimensions.

The World Gold Council (WGC) has proposed tokenizing the metal, backing digital tokens with physical bullion stored in London vaults. If the initiative is implemented, we could see the biggest transformation in gold trading in decades.

Why London?

The London gold market is the largest in the world. It is here that the largest banks, brokers and vaults are concentrated, where thousands of tons of bullion are stored. Historically, transactions here have always remained as “closed” as possible: they were carried out between professional participants, without direct access to retail investors.

The system works on the principle of trust and wholesale supply. When a bank sells gold to another bank, it is not always a physical movement of bullion - more often it is a transfer of entries in the accounting books. This is why liquidity in London is so high.

Tokenization has the potential to change the very philosophy of the market: giving investors around the world access to “digital shares” of physical gold, bypassing complex entry barriers.

Digital Gold: How Tokenization Could Change London's Precious Metals Market

What is digital gold?

Digital gold is a blockchain token backed by a physical gold bar. Each token corresponds to a specific weight of gold stored in a certified vault.

The advantages are obvious:

Availability. An investor no longer needs to buy a whole kilogram or ounce of bullion – they can purchase a share through a token.

Transparency: All transactions are recorded on the blockchain, making auditing easier.

Liquidity: Digital gold can be quickly exchanged for other assets or used in trading smart contracts.

Innovation: Such an asset can be easily integrated into DeFi applications, opening the way for new financial instruments.

In essence, digital gold turns a conservative market into an experimental space.

Investors and new opportunities

Tokenization will make the gold market more accessible and open up new use cases for the metal.

It's not just about traditional investments. Digital gold can be used for:

ensuring cross-border payments,
collateral in credit and leasing products,
integration into national digital currencies (CBDC),
micropayments and retail transactions.

In fact, gold will be able to play the role of not only a defensive asset, but also a full-fledged digital currency.

International experience: from Switzerland to Dubai

The idea of ​​"digitizing" gold is not new. Experiments have already been conducted in different countries:

Switzerland: In 2019–2020, banks tested tokens linked to gold reserves for institutional clients. The main goal is transparent and fast settlements.

China: The People's Bank of China has explored use cases for e-CNY in conjunction with gold tokens for cross-border trade.

UAE: Dubai has become a hub for startups issuing gold-backed tokens, products sought after by Islamic investors.

Singapore: Here, private companies offer tokens that can be exchanged back for real bullion, a rare example of the digital and physical worlds.

But it is London, with its role as the global 'golden heart', that is capable of setting the universal standard.

Challenges and risks

At the same time, the transition to digital gold also brings challenges:

Regulation. Traditionally, gold markets are heavily regulated, and the question of how to classify tokens - as a security, a commodity or a currency - remains open.

Security: Despite the advantages of blockchain, the risk of hacks and errors in smart contracts remains.

Traditionalists' opposition: Large banks may hold back reform for fear of reduced control and changes to their business model.

Trust in the backing: Investors will want to be sure that each token actually has a piece of gold behind it, and not just a ledger entry.

Economic effect

If digital gold becomes part of the global financial system, the consequences will be massive:

Increased liquidity. Gold turnover may increase many times over, as digital tokens are easier to buy and sell.

New players. Millions of small investors who previously had no access to the market will enter the market.

Increased competition. London will be forced to fight for leadership with Dubai, Shanghai and Singapore.

Integration with digital currencies. Gold can act as an “insurance” for state CBDCs, providing them with additional stability.

Forecast for the next 1-2 years

Experts believe that the following scenarios are possible over the next two years:

Launch of pilot project. WGC will test limited release of gold-backed tokens in partnership with banks.

Growing interest from institutions. Hedge funds and management companies will start using tokens as a hedging tool.

Emergence of competitors. Startups and foreign jurisdictions may offer their own models of digital gold, which will create a global race.

Formation of new rules. Regulators will develop separate standards for tokenized assets to protect investors.

If these steps are successful, in a few years gold may finally cease to be an exclusively physical asset and enter the digital economy as the “new old currency”.
Conclusion

Gold has always been a symbol of stability. But in the 21st century, even it is forced to change. Tokenization can make the metal not just a protective asset, but a universal tool of the global digital economy.

As one analyst aptly put it, “if gold is an eternal value, then digital gold is its future.”




By Miles Harrington 
September 08, 2025

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