The World Gold Council unveiled plans for a wholesale digital gold initiative that will enable investment in fractional amounts of gold and support collateral mobility. Solutions like HQLAX enable the instant transfer of financial collateral without moving it between custodians. This is a similar concept, but for gold.
Current gold collateral mechanisms face significant limitations. Gold can only viably be used to post collateral at the CME, requiring the “allocated gold” bars to be transferred to a COMEX approved depository. Gold isn’t generally used as collateral at other venues because of the frictions involved. For those who want to quickly transfer gold, they may hold it as “unallocated gold”, but UK and EU laws prevent it from being used as external collateral due to counterparty risk posed by the custodian bank. This new digital gold concept or “Pooled Gold Interests (PGI)” represents a third way.
PGIs share similarities with unallocated gold in that there’s a pool, but offer greater legal protection against insolvency, with the pool being co-owned by market participants and vaulted separately from other gold. PGIs can then be instantly transferred. The Linklaters designed legal structure will make them eligible for collateral at various financial market infrastructures (FMIs) or OTC trading venues in compliance with UK, European and US laws.
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