June 15, 2018 9:00 a.m. ET
Some makers and sellers of gold coins and bars are turning to blockchain, the digital ledger that underpins Bitcoin, hoping to add some cryptocurrency luster to bullion trading.
In doing so, the industry is banking on a trend that has seen a lot of buzz, but so far little result. Businesses from iced tea to photography have embraced blockchain in name, as last year’s cryptocurrency craze ignited interest in the technology.
This year, producers and traders are experimenting with a platform that logs ounces of bullion on a digital chain of ownership and creates a representation of trades. Gold sellers are hoping blockchain technology will help win over investors who dismiss bullion as burdensome to own or simply outdated.
Sales of American Eagle gold coins, a proxy for retail sales of physical gold, fell to a decade low last year according to the U.S. Mint, and the trend has continued into 2018. Metals dealers have bemoaned muted volumes, and
A-Mark Precious Metals
reported a 21% drop in revenue from one year ago for the last quarter of 2017 due to slow sales.
The willingness of some companies to invest in new technology signals a shifting status quo. The centuries-old gold market has historically been resistant to change, traders say. But with dwindling buyers, industry veterans are feeling the pressure to adapt.
Critics argue that applying blockchain amounts to little more than updating an accounting system, and others are skeptical that the efforts will catch on.
“The people who are working on these things are the people who are on the edges of the bullion industry,” said
managing partner at commodities research firm
Physical gold dealers are also competing with other methods of trading gold, such as futures contracts or exchange-traded funds. ETFs that track gold prices have taken market share away from physical bullion. State Street Global Advisors’ gold ETF, the largest of its kind, has seen $8 billion in inflows since the start of 2016.
Blockchain backers say companies looking to attract retail investors to physical gold need to modernize. “I really don’t think we can continue the way we have in the past,” said
president of Toronto-based
In May, Mr. Letwin wrote a paper on distributed ledger technology and its potential use in gold trading, titled “Taking Control of Our Destiny.” His 27-year-old son served as a sounding board.
“He has absolutely no interest whatsoever in gold because he sees it as an old man’s commodity,“ Mr. Letwin said. “When I talk to him about this, he loved it because he thinks that this approach will allow us to create new customers, including millennials.”
Earlier this year, miner Goldcorp Inc. deposited 3,000 ounces of gold on a blockchain-backed trading platform run by 3-year-old startup Tradewind Markets Inc. After the gold is sent to the
Royal Canadian Mint
it is credited to the owner’s account for trading with others on the web application with all transactions backed up by the blockchain ledger.
Tradewind was the first company to form out of the venture arm of IEX Group Inc., a stock exchange known for trying to combat high-frequency traders. It has since been spun off and raised $23 million from backers including mining companies like IAMGOLD and Goldcorp, and precious-metals asset manager Sprott Inc.
“In some ways the gold market is behind a generation,” said
president of Tradewind. “In the backdrop you’ve also got cryptocurrencies, so gold needs a way to modernize in order to compete.”
Goldcorp has yet to sell a significant amount of gold digitally on Tradewind, said
vice president of marketing at Goldcorp. Whether the new platform eventually accounts for a majority of sales will depend on how it expands, he said.
“It’s just getting enough critical mass of banks and miners and investors all using the platform,” said Mr. Stephens.