Gold becomes digital, and it is not Bitcoin. Precious metal in new form

[Ben Graham]

It seemed yellow metal could hardly surprise us anymore, unless with a sudden explosive rise. Yet gold has more tricks up its sleeve: it's going digital. Usually, that term is used to describe Bitcoin, but the first cryptocurrency has nothing to do with this. Some big market players have begun digitizing physical metal, and this new experience is revealing.

Earlier this week, gold dipped slightly, reaching $3,635 per ounce. Market activity remained low as traders acted cautiously ahead of the Fed meeting. On Tuesday, September 16, gold was trading at $3,693 per ounce. According to analysts, the overall fundamental bias stays on the side of gold buyers.

On Monday, September 15, December futures on the metal on the Comex exchange hit a historic high—$3,722.40 per ounce. The demand for gold surged significantly, driven by the weakening US dollar and falling yields on US government bonds.

Since the beginning of this year, gold has appreciated by nearly 35%, after rising 27% in 2024. This has been largely fueled by purchases by central banks around the world, easing monetary policy, and ongoing geopolitical and economic uncertainty.

Weak macroeconomic data out of the US signals cooling in the labor market: job openings are falling, unemployment is rising. All this adds fuel to the fire. Against that backdrop, investor confidence is growing that the Federal Reserve at its upcoming meeting on Wednesday, September 17 will cut interest rates for the first time in nine months. Markets are pricing that in at 100% certainty for a 25 basis-point cut. Experts think the Fed could reduce rates three times by the end of 2025. That scenario puts pressure on US Treasury yields and weakens the greenback, which traditionally boosts gold's appeal.

At the same time, geopolitical risks are rising amid tension in the Middle East and political crises in Japan and France. These factors push investors toward "safe havens," especially gold. According to the World Gold Council (WGC), central bank purchases of gold this year may reach last year's record level—1,000 tonnes.

In the current environment, major investment banks are revising their forecasts for gold upward. Currency strategists at UBS raised their price target for gold to $3,800 per ounce by the end of 2025, while analysts at Goldman Sachs foresee the metal climbing to $4,000 per ounce in the medium term.

Against this background, the dollar remains under pressure, while the Fed prepares to ease monetary policy. As a result, gold has every chance to continue the "bullish" trend. Although a corrective pullback is possible, the overall trend remains upward. Any drop is regarded by market participants as an opportunity to buy at a more advantageous price, considering gold may again reach historic highs above $3,700–$3,800 per ounce.

The yellow metal remains at record highs because traders expect a softening in the Fed's monetary policy. The market is pricing in a 0.25 percentage point rate cut, amid signs of labor market weakness in the US. Investors anticipate the first rate reduction since December 2024 at the upcoming meeting. The probability of a 25 bps cut in September is priced at 96.1%, while a 50 bps cut is at only 3.9%.

Reduced US Treasury yields and a weakening USD are making gold more attractive to investors. Since the start of 2025, the precious metal has risen almost 40%, exceeding inflation-adjusted records.

Digitized gold: push for innovation

In early September, the World Gold Council (WGC) launched a pilot project to tokenize gold. This initiative aims to expand OTC trading of gold and its use as collateral in financial markets. When considering the technical and legal aspects of this proposal — which could profoundly reshape the precious metals market — experts have noted several key features:

Transparent ownership rights. Investors may directly own bullion bars, which eliminates custodial counterparty risks.

Investors claim a defined quantity of gold held by a custodian. This model allows transactions down to thousandths of an ounce. However, one risk is the potential loss of assets in case the custodian becomes insolvent: investors' claims may be liquidated along with those of other unsecured creditors.

Nevertheless, tokenized gold (referred to as PGI – Pooled Gold Interests) has a number of advantages:

• It allows direct fractional investment in physical gold, reducing many drawbacks of existing systems.
• Banks and investors can trade fractional ownership rights of physical gold held in segregated accounts.
• Tokenized gold can be transferred via digital registers. Key market participants will be responsible for holding and jointly managing the physical metal. The system's algorithm tracks changes and automatically rebalances assets.

The roadmap for PGI includes:

• In the first phase, several banks and financial institutions will test the technology. The pilot is planned to launch in Q1 2026.
• Next steps: scaling up — onboarding clients, integrating with financial-market infrastructure, and working with regulators and oversight agencies.

The WGC believes that early participants will be able to help establish the foundation, the governance system, and the operating rules for tokenized gold.

However, some experts remain skeptical. They believe the project may meet resistance because the key players in the gold market tend to be conservative and extremely cautious. One of the main challenges lies in the legal domain: recognizing PGI automatically as a simplified collateral asset may be difficult in many jurisdictions.

A positive factor supporting tokenization is the Gold Bar Integrity (GBI) program, launched by the LBMA together with WGC. This program tracks the full supply chain of gold and creates digital passports for bullion bars.

Other supportive trends include:

• The prolonged weakening of the US dollar and rising macroeconomic uncertainty. Many central banks are reducing exposure to US Treasuries and increasing gold purchases.
• A large inflow into gold ETFs, with the total market capitalization of the precious metals market exceeding $400 billion.

S&P 500 hits record high: it breaks through 6,600

According to analysts, S&P 500 futures remained largely unchanged after the US Senate confirmed Stephen Miran as a new member of the Federal Reserve Board of Governors. The confirmation came just one day before the Fed's policy meeting, where interest rate cuts are expected to be discussed.

Meanwhile, on Monday evening, September 15, Wall Street celebrated a major rally: both the S&P 500 and Nasdaq Composite reached new all-time highs. Notably, the S&P 500 surpassed the 6,600-point mark for the first time in history — a historic milestone. The rally was driven by a strong performance from several major tech stocks, including Alphabet, which rose by over 4%, and Tesla, which gained more than 3%.

As for the Japanese Nikkei 225 index, it also broke new ground, surpassing 45,000 points for the first time ever. This surge contributed to a broader rally in the Asia-Pacific markets (APAC). Investors responded positively to recent U.S.–China negotiations, which were perceived as relatively constructive.

The main focus for global markets remains the upcoming Federal Reserve rate decision, scheduled for Wednesday, September 17. According to Fed fund futures, the probability of a 25-basis-point rate cut stands at a full 100% — an extraordinary consensus. Traders are also expected to watch Fed Chair Jerome Powell's press conference closely for any signals regarding the future direction of US monetary policy.

The material has been provided by InstaForex Company - www.instaforex.com