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Putting Gold on a Blockchain
Alasdair Macleod

Two years ago, David Tait, CEO of the World Gold Council announced an initiative to introduce blockchain technology to ensure that gold bars have been responsibly sourced and to establish a chain of custody, digitising the entire supply chain of gold bar production. There is no doubt that between them, the WGC and LBMA have been bringing considerable pressure to bear on refiners, markets, and miners in Switzerland, Japan, North America, Australia, and South Africa — some of which have signed up to the initiative.

At the launch of this “gold bar integrity programme” Sakhilla Mirza, LBMA’s General Council reckoned that the pilot scheme would take about three months (to mid-2022). Yet it was only this March that aXedras, a Swiss-based software business funded by the WGC was appointed the service provider for the gold bar database. The drawn-out timescale is likely evidence of participants dragging their feet.

This initiative is driven by environmental concerns that the mining and processing of gold bars should be ESG compliant. The pilot project run by aXedras involved 8 mines, 9 refiners, 4 logistic companies, and 10 banks & dealers. Now that the company has been appointed to run the Gold Bar Integrity Database, we will probably hear more about this in the coming months.

Why are the WGC/LBMA doing this?

There is no doubt that the mining industry is coming under political pressure to reduce its carbon footprint and attend to wider environmental concerns. The World Gold Council is a mining industry backed organisation, so it in turn has to demonstrate the industry’s ESG credentials. That it has chosen the blockchain route to identify compliant gold bars seems hard to justify on the basis that it adds nothing to ESG compliance, except perhaps for new gold mined, sourced, and processed by LBMA members. Annual gold output globally is about 3,000 tonnes, which is only 1.5% of above-ground stocks. It only makes sense if existing bars amounting to about 80,000 tonnes are grandfathered in (most of the rest are classified as jewellery), which would be a considerably more difficult project.

Notable by their absence are Asian interests. This is particularly important because according to the LBMA presentation in 2022 announcing this joint initiative, the blockchain project commences with the one-kilo 9999 bars, and not the LBMA’s 400-ouncers. The LBMA’s CEO claimed that these non-deliverable bars (to the London market) represent the bigger risk and gives the greater reward on the project.

When we look at global mine output, that which evades the London market and therefore this initiative could be over half the 3,000 tonne annual total, considering Russia, China, and many other Asian miners, refiners, and buyers are not in the scheme. Indeed, according to Ruth Crowell, LBMA’s CEO, only 41% of global refinery output has signed up to the pilot.

To justify the project, the WGC commissioned an opinion survey, which has been presented at a number of promotional conferences. This is illustrated below, in this case given by Ruth Crowell, the LBMA’s CEO.

The WGC survey is of the retail market, which has limited relevance other perhaps than for the WGC’s public relations. The retail market invests almost entirely in regulated ETFs and coin, very few taking delivery of bars. Furthermore, surveys of this sort offer a preselected list of clipboard options, which are often unrelated to the true reasons for not investing. Followers of this Substack will know that the reason retail investors don’t buy gold is because they don’t actually understand it.

However, there can be little doubt that the WGC intends that all regulated businesses, particularly ETFs, will require newly mined gold to be delivered with a blockchain certificate. Unless a refiner can self-certify bars to put onto a blockchain, which defeats the ESG and supply chain integrity concerns, the amount of gold going onto this blockchain is severely limited. Given the small quantities involved, could this develop a premium for blockchained gold?

It would be a mistake to rule it out. If ETFs are only permitted to buy blockchained gold, just imagine the chaos if (or rather when) Joe Public suddenly decides to buy gold ETFs en masse. A situation is bound to develop whereby ETF trustees and custodians would have to suspend share creation for lack of blockchained bullion. But given that the project doesn’t involve LBMA deliverable bars, at least initially, that will be a problem deferred, even if this project gets beyond its pilot scheme.

It is doubly difficult to see, other than political correctness what this scheme delivers. Gold bars taken into vaults are already tested, and subject to frequent metal audits. The existence of a separate electronic identity is simply superfluous. It is possession of the bar which matters, not an electronic identity, a fact which seems to have been lost on the planners.

Will central banks subscribe to this scheme?

The largest category of recorded holders is central banks, which according to the WGC collectively own 35,976 tonnes. Some nations, such as the US and UK, hold their gold in their treasury ministries which politicises their holdings and makes it difficult to imagine them agreeing to any blockchain identification, even for gold held earmarked for other nations’ holdings. And there is the problem identified by analyst Frank Veneroso twenty years ago: gold out on lease or swapped is not actually in possession.

In 2002, Veneroso put this at between 10,000—14,000 tonnes, the latter figure being half global central bank holdings at that time. He claimed that much of this gold had been sold into the market and turned into jewellery. In addition, the US is known to have indulged in price suppression schemes, which probably explains why gold earmarked for Germany was not immediately available when Germany requested the repatriation of a minor part of her holdings at the New York Fed.

If there is one thing central banks and their governments will agree on, it is that their holdings are secret and must not be identified other than in official statistical releases. Nor, even more importantly, should the hidden reserves held in sovereign wealth funds and elsewhere be identified.

HNW family offices and individuals will not comply

The whole point about owning gold bars is they are a hidden, hoarded stash of real money, held by high net worth individuals and their family offices with a common purpose: to protect their wealth from governments and their fiat currencies. With this in mind, they are not about to divulge anything. Just imagine the response to this form of meddling, which they would certainly view as the means by which government authorities could track their ownership of bars.

Nor would they take delivery of “compliant gold”. It would be a simple matter for bullion dealers in, say, Dubai to detach gold bars from the blockchain, destroying the latter’s integrity. And if the blockchain is taken as evidence of ownership (otherwise, why have it?) then the bar’s identity could possibly be passed on to an unsuspecting buyer in lieu of the bar itself.


It is understandable that in a world where the bureaucrats are increasingly in charge of markets this sort of scheme can arise. To be fair to the WGC and LBMA, for political reasons they probably have little alternative to going down this route. That said, statistical abuse by the WGC in the form of a retail survey to justify this should be recognised for what it is.

The impracticality and unacceptability of it may or may not be reflected in the building of aXedras’s gold bar database. It should be noted that the scheme does not involve the largest gold exchange dealing in 9999 one-kilo bars — the Shanghai Gold Exchange. Nor does it involve the Eurasian exchanges linked to it, such as the Moscow exchange and Dubai.



Alasdair became a stockbroker in 1970 and a Member of the London Stock Exchange in 1974. His experience encompasses equity and bond markets, fund management, corporate finance and investment strategy. After 27 years in the City, Alasdair moved to Guernsey. He worked as a consultant at many offshore institutions and was an Executive Director at an offshore bank in Guernsey and Jersey.

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