In today’s Finshots, we explain why London is turning to blockchain technology to protect its centuries-old dominance over the global gold trade.

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The Story

For centuries, gold has been a physical asset. If you wanted to own it, you needed the actual metal, or at least a trusted institution that held it for you. But over the years, the business of trading gold has become increasingly digitised. And London sits at the centre of that system. 

The city is home to the world's largest over-the-counter gold market, with banks, vaults, refiners, brokers and clearing institutions all operating within the same ecosystem. 

So even if a South African mine is selling to a bank in Australia, the transaction involving that bar will most likely pass through London's financial infrastructure. This is called a Loco London trade.

But that system is now facing a new challenge. Gold demand is shifting towards Asia, with China and India among the world's biggest consumers and central banks accumulating bullion at a rapid pace.

So, in order to protect London’s role in the gold ecosystem, the UK's Financial Conduct Authority (FCA) is now working on a framework for ‘tokenised’ gold, where a digital token represents ownership of a specific quantity of physical gold held in a vault.

But why does a centralised institution want to put gold on a blockchain? After all, the whole point of a blockchain is to get rid of the ‘institution’, right?

Sidebar: If you're interested in knowing more about blockchain and cryptocurrencies, we've written an entire series on how it works. Check it out here: Finshots Cracks Crypto.

In order to understand that, let’s first look at how London's wholesale gold market currently works.

There are essentially two ways institutions can hold gold:

1. Unallocated gold: Most wholesale gold today is held through unallocated accounts. Think of this as a bank account denominated in ounces of gold. If you have 100 ounces in your account, you do not own 100 specific ounces sitting somewhere in a vault. Instead, you have a general credit claim against the bullion bank or clearing bank for 100 ounces of gold. This makes unallocated gold extremely convenient because you can buy and sell large quantities without identifying, moving or storing specific bars. But there is a trade-off. You are an unsecured creditor of the institution. If the bullion bank runs into financial trouble, your claim is exposed to its credit risk because the bank is not holding specific gold on your behalf.
2. Allocated gold: This is the opposite. Here, specific, numbered bars are assigned directly to the owner and recorded as their property. The custodian's role is simply to store and safeguard those bars on the owner's behalf. This gives the investor a much better property right and largely separates their ownership of the gold from the custodian's financial health. But that protection comes with higher costs and less flexibility. Each bar has to be identified, stored, insured and managed, and you cannot easily divide or transfer a specific physical bar without going through additional processes.

This creates an interesting opportunity. Imagine a gold bar sitting safely inside a vault, but instead of one institution owning the entire bar, the ownership of that bar is divided into hundreds of digital tokens. Each token could represent a legally recognised share of the underlying physical gold. So an investor could own, say, 1% of a bar without having to physically take possession of it, while the gold itself remains safely stored with a custodian.

And this is not just a theoretical idea. In September 2025, the World Gold Council and law firm Linklaters introduced a framework called Pooled Gold Interests (PGI), which allows wholesale investors to hold beneficial ownership in pools of physical gold rather than relying only on a general credit claim against a bullion bank. In other words, it is designed to bridge the gap between allocated and unallocated gold, giving investors an interest in physical bullion while making those interests easier to divide and transfer.

The technology is already being tested in London's gold market too. HSBC, one of the world's largest precious-metals custodians, launched a live gold tokenisation platform in 2023. It creates digital representations, or "digital twins", of physical gold held in its London vaults. Institutional clients can trade these tokens through HSBC's Evolve platform, with each token representing a fraction of a troy ounce of gold. HSBC's work is also being developed within the UK's Digital Securities Sandbox, showing that the digitisation of London's gold market is no longer just a theoretical idea.

And this could give London an important advantage. The city already has the vaults, banks, traders, clearing systems and institutional relationships. Tokenisation would allow it to put a digital layer on top of this existing infrastructure. The physical gold would still sit inside vaults, but its ownership could be represented by digital tokens that can be transferred between investors without moving the metal itself. Banks could trade these tokens, investors could divide and transfer their claims more easily, and eventually institutions could use them as collateral. This could allow London to modernise the way gold is traded without giving up the financial infrastructure that already makes it the world's leading gold market.

There is another reason this matters. A huge amount of modern finance depends on something called collateral mobility. Banks need to be able to move assets, pledge them, or use them to satisfy financial obligations. Gold, despite representing trillions of dollars of wealth, can be more cumbersome to mobilise when the underlying asset is physical.

Tokenisation could therefore increase the number of gold transactions without increasing the amount of gold in existence. The same physical bullion could be transferred, pledged as collateral and used in multiple transactions much more easily, even though the underlying metal remains safely inside a vault.

But that also creates a new risk. If gold becomes much easier to use as collateral, it could support more financial activity around the same underlying asset. Depending on how collateral reuse and rehypothecation are structured, tokenisation could make the financial system more efficient while also making it easier to build leverage around gold.

So does tokenisation make gold safer by clarifying ownership, or does it make the financial system more leveraged by making gold easier to mobilise?

You could say it does both.

But there is also a regulatory hiccup. In the UK, storing physical gold in a vault is not treated in the same way as holding financial securities for a client. But once that gold is turned into a digital token, the token can fall within the FCA's regulatory framework. So you could end up with a strange situation where the digital representation of the gold is regulated, while the physical gold backing it is not. Regulators will therefore have to ensure that the legal rights attached to the token actually match the gold sitting in the vault.

Then, there’s another problem.

If ownership can be transferred globally, settlement can happen around the clock, and common digital standards allow different markets to connect, why does the transaction necessarily need to go through London? Shanghai, Hong Kong and Singapore are already building their own precious-metals infrastructure.

Which makes tokenisation both a defensive technology and a potential threat to London. There is also a broader irony here. For years, much of the cryptocurrency industry argued that blockchain would replace traditional financial institutions. Yet one of its most promising real-world applications may end up doing the opposite. Banks, exchanges, regulators and custodians could simply use blockchain as a new layer underneath the financial system they already operate.

And that is probably the more important highlight of the story. Blockchain may finally find its biggest use case not by replacing finance, but by becoming the infrastructure behind it.

But there is no guarantee that this will work in London's favour. Anybody can adopt blockchain. London's real advantage is its network of standards, institutions and trust. If it can establish the rules that determine what counts as trustworthy digital gold, it could preserve its influence even as the geography of gold demand shifts east.

So the interesting question is not whether blockchain will replace gold. It is whether blockchain will help London remain the place where the world trades it.

Or, perhaps more importantly, whether London can use blockchain to preserve a financial moat that was built long before blockchain existed.

Until then…

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