Gold Industry Embraces Blockchain to Secure Its Supply Chain

Eddie Spence, Bloomberg News

A worker stacks 12.5 kilogram gold bullion bars at the Valcambi SA precious metal refinery in Balerna, Switzerland, on Tuesday, April 24, 2018. Gold's haven qualities have come back in focus this year as President Donald Trump’s administration picks a series of trade fights with friends and foes, and investors fret about equity market wobbles that started on Wall Street and echoed around the world. , Bloomberg

(Bloomberg) -- The gold industry is betting that the blockchain will help to keep illicit bullion bars out of the international market.

London Bullion Market Association and the World Gold Council are developing a digital system to track gold through the supply chain, the organizations said in a joint statement on Monday. Using a blockchain-backed ledger, the Gold Bar Integrity Programme will capture the transaction history of bullion from mine to vault, they said.

The initiative aims to improve transparency and prevent gold mined by criminal gangs or in conflict zones ending up in bank vaults. The first phase will involve all parts of the gold supply chain from miners to refiners, and includes banks such as Standard Chartered Plc.

“The international trade in wholesale, physical gold depends on confidence,” Ruth Crowell, chief executive officer of LBMA, said in the statement. “This is a major advance in furthering transparency for the common good of the gold industry.”

The ledger will not be fully public in the way that it is for Bitcoin -- often seen as a competing asset to gold -- Crowell said in an interview. Still, participants at different stages of the supply chain will be given permission to access it.

Kilobars of gold will be the initial focus of the pilot because they have historically been worst affected by fraud, Crowell said. Gold bars falsely stamped with the logo of accredited LBMA refiners have previously found their way into the London market, potentially exposing it to illicit metal.

Using the technology to improve trust in the provenance of gold flows will increase demand for the precious metal, said WGC CEO David Tait. It’s an important part of the organization’s Gold 24/7 program, which aims to make gold markets less fragmented and more accessible.

“If we move into a tokenized world without this part solved, we are compromising any future work,” Tait said in an interview.