Goldzip launches in Hong Kong with US$300 million worth of physical metal in reserve from exchange members

Hong Kong’s local gold exchange will back its new platform for trading digital gold with an initial US$300 million worth of the precious metal, with the minimum reserve to be guaranteed by members of the Chinese Gold & Silver Exchange (CGSE) for three years.

Participating members in the new platform called Goldzip are undergoing an audit of their physical gold inventory before it is moved into a vault at the exchange, said CGSE executive director Calvin Ng.

The auditing is for verifying that each Goldzip digital token that CGSE issues will be backed by one gram of gold.

Ng said the mission of Goldzip, which launched on Wednesday, is to make the transfer and payment with gold easier through the use of asset-backed tokens which will be linked to a blockchain ledger technology.

Based on the current price of HK$12,110 (US$1,543) for every 999.9 tael gold contract traded on the exchange, that would mean each digital token can be bought for about HK$320 per gram.

The exchange is seeking to develop an ecosystem that will allow investors to buy and sell Goldzip across cryptocurrency exchanges, over-the-counter brokers, and gold retailers, he said. Ultimately, spending with the tokens would also be made easier as Goldzip has lined up some 30,000 merchants across Southeast Asia. For every transaction, Goldzip will charge a transaction fee equivalent to 0.001 token.

“Immediately our members could sell Goldzip tokens to the public through retail outlets. For redemption, holders of Goldzip tokens could schedule an appointment with the participating members of the [CGSE] exchange, or go through their agents, to receive the physical gold,” said Ng.

Participating members of the exchange have agreed to maintain the reserve balance at a minimum of US$300 million, and stand ready to provide support if necessary. Tokens that are redeemed will be retired to maintain the matching gold to token ratio of one to one, he said. Ng did not specify how many of the 171 members of the CGSE are participating in the physical reserve backing.

Ng said investors could potentially profit from arbitraging the price differentials of Goldzip tokens that are traded on different venues. But since the tokens are backed one-to-one by gold reserves, which the exchange said would be audited quarterly, the price of Goldzip should track closely to the spot price of the yellow metal. Ng did not say which gold price referencing benchmarks CGSE would use to issue the Goldzip tokens.

Ng said Goldzip will soon announce partnership agreements with various global payment networks including Visa, Mastercard and UnionPay.

Tokenisation of gold using blockchain is not new. Last year, Singapore-based Digix Global issued gold-backed “DGX” tokens saying the purpose was “to democratise access to gold by having digital gold easily accessed by the average person”.

The advantages of using blockchain for precious metal is that it provides a ledger which is tamper-proof and immutable, and can help minimise fraud.