Understanding The Importance Of Basel III For Gold Owners

(July 18 - Barry Stuppler)

After the banking disaster of 2007-08, a group of financial minsters and senior executives from the largest international banks met. At this meeting, they strengthened regulation, supervision and risk management within the banking sector. This document was called Basel I.

The Basel I guidelines were later replaced with Basel II. Now, in the past four years, guidelines were updated again into Basel III. These guidelines will take full effect in Europe in January 2025.  What’s important to gold owners is that, in Basel III, gold will be reclassified as a Tier I asset from a Tier III asset. A Tier I asset has 0% risk weight, similar to cash and government bonds. In the past, with gold classified as a Tier III asset, banks had to hold more capital to offset the risk of gold holdings, causing many large banks to avoid holding gold.

Please understand these guidelines do not apply to the world’s largest central banks which have held gold as a reserve asset for hundreds of years.

What is happening now is many of the largest international banks have started to acquire gold ahead of the January 2025 start of Basel III. With China stopping its gold buying on the open market since May, banks can now acquire gold without competition from China.

During the early morning of July 17^th, when gold reached its recent new all-time high of $2,485 per ounce during European trading, I called a good friend in England, a commodity trader, and asked him what is driving the gold price. He believes the aggressive buying is coming from International Banks and that this buying will continue through the end of the year. He sees the gold price reaching $2,800 to $3,000 by year-end.