Gold Tokens

Fintech-enabled products and services are already available on the market. Recently, a local bank launched an SFC-authorised gold token product using distributed ledger technology (DLT) (including smart contracts), seeking to modernise the trading of gold.

If you are interested in investing in gold through gold tokens, you should first pay attention to the following:

• Gold-backed feature: Investors should ascertain whether the tokens are backed by physical gold. Some gold tokens may be backed by physical gold and some are not.
• Purchasing gold tokens: Currently, gold token products authorised by the SFC may only be subscribed and redeemed from the product issuer (i.e. primary market). Some unauthorised gold tokens could be traded in the secondary market and they may trade at a premium or a discount to the underlying gold that the tokens represent.
• Unregulated trading platform: Investors may risk losing their entire investment held on such platform if it ceases operation, collapses, is hacked or otherwise suffers from any misappropriation of assets.
• Pricing mechanism: Pay attention to how the issuer determines the buying and selling prices. The issuer may charge a certain percentage rate of margin for buying and selling gold tokens. This margin may vary depending on the trading hours.
• Underlying gold: The underlying gold may have varying fineness (e.g. 99% or 99.99%) and corresponding values. If you want to invest in these tokens, you need to understand what their underlying gold is.
• Non-principal protected: Gold tokens are tools for investing in gold and are not deposit products. Investors are exposed to the market risks of gold. The gold tokens may fall in value and therefore your investments may suffer losses.
• New technology: Investors should note that there are certain associated risks with the tokenisation arrangement such as cybersecurity, system outages, the possibility of undiscovered technical flaws, evolving regulatory landscape and potential challenges in application of existing laws.

Before investing in a gold token, investors should do their own research to assess if the product is suitable for them. For SFC-authorised gold token products, investors can refer to their offering documents, including the key fact statements to learn more about their investment characteristics and risks. If you are in any doubt, you should seek independent professional advice.

• Some gold tokens may be backed by physical gold. They usually use blockchain technology to record and track the investors’ interests in the underlying gold and all transfers. The relevant blockchain technology seeks to ensure the safe keeping of these records and prevent tampering.
• Investors should consider the issuer’s storage management of the relevant gold, as well as whether the issuer has purchased appropriate insurance for gold loss, damage, or theft.

• For some gold-backed tokens, investors do not have the ability to take physical possession or delivery of the gold. On the other hand, investors will usually be able to take physical possession of the gold when acquiring physical gold directly.
• For some gold tokens, investors may only buy and sell them through the issuer subject to the price to be determined by the issuer. The issuer may also charge a higher margin outside the designated trading hours and impose suspension of dealing under some circumstances.
• Some unauthorised gold tokens may also be traded in the secondary market. The price of these tokens would depend on the particular trading platform it is traded on, and may trade at a premium or a discount to the underlying gold that the tokens represent. Further, the trading platform on which these unauthorised gold tokens are traded may not be regulated, posing further risks to investors.