MarketWatch, April 11, 2017 — Pretty soon, pension funds and other institutional traders will be able to buy and sell gold on a platform inspired by the digital currency bitcoin.
U.S. futures and options exchange CME Group announced on Tuesday that it is in the final stages of testing a venue for trading spot gold that’s based on the blockchain, the pioneering distributed-ledger technology that powers the bitcoin network.
CME built the platform in partnership with the U.K. Royal Mint, which has helped supply $1 billion in gold bullion to back transactions executed on the network. Blockchain companies AlphaPoint and BitGo helped develop the software and trading platform.
The platform isn’t expected to launch until later this year, according to news releases from the CME Group, AlphaPoint, and BitGo.
Physical gold will be represented on the platform by tokens called RMGs — short for Royal Mint Gold. The platform is the first digital gold product targeted at institutional investors, and its also the first to work with a government entity, according to the releases.
Trading gold in the spot market is a cumbersome process that involves moving quantities of the lustrous metal from place to place. The market is also extremely fragmented, with individual dealers free to offer their own prices.
CME, through its Comex subsidiary, is the largest trading venue for gold futures contracts in North America. A futures contract is a promise to deliver or receive a commodity, asset or currency at a set price at a mutually agreed-upon future date.
Presently, investors who’d like to gain exposure to gold can either purchase futures US:GCM7 contracts or shares in an exchange-traded fund like the SPDR Gold GLD, +0.61%.
For those who are unfamiliar with the concept, a blockchain is a distributed, cryptographically-protected ledger that maintains an immutable record of every transaction executed on the network. It was first introduced to the world as the system that undergirds the pioneering digital currency bitcoin.