• 3 hours U.S. Sanctions Are Wreaking Havoc On Iran's Economy
  • 6 hours Billionaire Hedge Fund Legend Bets Big On Gold
  • 8 hours Will Facebook’s Crypto ‘Libra’ Challenge Bitcoin?
  • 24 hours Will The Stock Market Really Crash If Trump Isn’t Re-Elected?
  • 1 day For American Businesses, The Fairy Tale Is Already Over
  • 1 day Market Mayhem Sparks Worries Of A Looming Recession
  • 1 day Closure Of World's Most Important Waterway Could Be An Economic Disaster
  • 2 days Would You Give Up Your Privacy For A Few Bucks From Facebook?
  • 2 days The $3.2 Trillion Caspian Caper
  • 3 days The Billion-Dollar Brands Behind The Street Fashion Coup
  • 3 days Gold Miners See Massive Upside Potential As Precious Metals Climb
  • 4 days Colorado Rakes In $1 Billion In Pot Revenue
  • 4 days London Metals Exchange Bars Day Drinking On Trading Floor
  • 5 days Tax Cuts And Cheap Money Push The U.S. Budget Deficit Closer To The Edge
  • 5 days Fake “Made In Vietnam” Certificates On The Rise As China Looks To Skirt Tariffs
  • 5 days Kremlin Moves To Dump The Dollar
  • 5 days How Climate Change Could Lead To A Global Economic Crisis
  • 6 days What Happens When Beijing Is Biggest Owner Of US Debt?
  • 6 days Investors Are Betting Big On Boozeless Bars
  • 6 days Why China Won't Back Down In Trump's Trade War
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

  1. Home
  2. Markets
  3. Other

Big Changes Ahead: Gold Just Became Money Again

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.

 

Back to homepage

Leave a comment

Leave a comment