By Doug Hornig, Casey Research
On June 18, the Federal Reserve and FDIC circulated a letter to banks that proposes to harmonize US regulatory capital rules with Basel III.
BASEL III is an accord that tells a bank how much capital it must hold to safeguard its solvency and overall economic stability.
It's a global standard on bank capital adequacy, stress testing, and market liquidity risk.
Here's the important bit:
At the top of the proposed changes is the new list of "zero-percent risk weighted items," which now includes "gold bullion," right after "cash."
That's the part to take notice of.
If the proposals are approved by regulators – and that seems likely since adoption of Basel III will be– then this is a momentous change for the gold market.
Now banks will be allowed to hold bullion in their vaults and count it among their Tier 1 assets – in other words, the least risky assets.
That by itself would be bullish for the gold price, as banks that recognize gold's unique characteristics seek to stockpile more of it.
But that's not the whole story…
Gold Regains Money Status
For one thing, Basel III also stipulates that a bank's Tier 1 holdings must rise from 4% of assets to 6%.
That means that banks may not only replace a portion of their existing paper with bullion, but may use it to meet some of the extra 2% as well.
In addition, this vote of confidence from the highest monetary authorities gives further impetus to the remonetization of gold.
In essence, what's happening is that from now on gold will be considered "money" in virtually the same way as cash or bonds.
And banks will be given the choice between holding more of their core assets in history's most reliable store of value vs. paper backed by nothing more than the promises of increasingly wasteful governments.
Finally, there is the impact on individual and institutional investors.
Jeff Clark, in Casey Research's BIG GOLD newsletter, has been guiding gold investors for years. In his view, this news looks set to really shake up the gold market, because as regulators and banks increasingly view gold as having safety on a par with the various paper alternatives, it is logical that they will also see the need to beef up their own holdings.
There are a number of positives for gold going forward.
Though it remains speculation on our part, we believe that the net result of Basel III and associated adjustments to US regulations will be an increased recognition of gold's safe-haven status across all markets.
And that translates into higher global demand for the metal next year, and a concomitant increase in its price.
If you haven't done so already, it's time to get informed on gold and begin adding it to your portfolio.
In order to get the gold, the big banks will continue to do ANYTHING, which includes *stealing* from allocated accounts. There are enormous lawsuits going on NOW in Switzerland over just this, stolen gold from supposedly sacrosanct segregated accounts.
NOT . . . . and by the way, this is part of what happened with MFGlobal with JPM doing the stealing. They were in a good position to do so, since they had the keys and the receipts, and happen to be on the oversight committee. Another well-planned theft, but not the first and certainly not the last.
So, most certainly, buy some gold and silver. But buy metal and not paper, and don't give it to the wolves to guard.
Awesome news! Thanks INO.
Ron Paul said, "With a gold standard, the Fed could disappear. The banking industry would become a industry like any other, subject to the profit and loss test and given no industry bailouts at taxpayer expense. The financial industry would be forced to surrender its love of socialism (for losses not gains) and become honest again. We would all start living within our means rather than depending on the public sector to save us.
Trade with other nations would benefit. Protectionist wars rooted in currency manipulation would cease. Policy options in Washington would be mercifully restricted to only what Washington could afford to do and afford to do and to enforce. Vast swaths of the public sector as we know it would have to just pick up and go home, This would be the greatest blessing visited on this country in a century. But you can see why Washington isn't interested? It has nothing to do with disagreements over economic theory. It is all about who has the power in society. Sound money, that is gold, gives power to the people and the free markets they control.
Excellent reply. Keynesian policy has allowed us to operate under smoke and mirrors for decades. Keynesians write complex mathmatical equations to explain the mass physchology of human behavior. This is foolish!
It is stealth return of gold into monetary system.Consequence of this is banks buing gold an you can imagine what it will do with its price.Martin
When the banks print too much money, eventually it will be of little value, and gold wil be the place
where people invest their money. See Europe ofater the II world war! Precious metals are good
investment now!