One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class note Eric Sprott.. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a "zero percent risk-weighted item" in their proposed frameworks. ...
What the Basel III proposals do confirm is the regulators' desire for banks to improve their liquidity position by holding a larger amount of "high-quality," liquid assets in order to improve their overall solvency in the event of another crisis. ...
If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets -- and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the "liquidity trifecta" of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn't a bank choose gold? ...
If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely... but just a thought).
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