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Basel 3 rules start on June/28/2021 big game changer in Gold

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Basel III Could Be Gold's Best Friend | Investing.com

New Rules for Banks

 

Previously, banks could hold gold on their balance sheets in the form of unallocated paper gold contracts without holding physical gold in tangible form. These paper contracts were considered as “good as gold” when it came to determining how much capital a bank needed to maintain on its balance sheet. Under the old rules, there was little incentive to hold physical gold, as it was only valued at 50% for reserve purposes. Basel III rules move physical gold from being considered a Tier-3 asset to being considered Tier-1, which allows physical gold in bullion form to be counted at 100% value for reserve purposes. Gold in unallocated paper contracts will no longer be considered an equal asset. For this reason, banks using paper forms of gold to help meet reserve requirements will have to convert those positions to physical metal, or risk becoming too undercapitalized to continue to function.

Currently, there is an imbalance between the amount of unallocated gold included in paper gold contracts and the physical gold available to honor those contracts traded on the COMEX or LBMA bullion exchanges. The unallocated gold is sometimes estimated to exist at a 100:1 ratio to physical gold available for delivery. This condition has persisted because few contract owners have requested delivery of the physical metal to settle these contracts. Lately, this has begun to change, applying pressure to the physical bullion market in doing so. Beginning in June of 2021, Basel III rules will require banks to hold unencumbered physical gold valued at 100%. Unallocated paper gold receipts will not be considered equal assets for the purpose of evaluating financial strength. Banks have wisely already begun to gravitate towards receiving physical delivery in preparation for compliance with Basel III rules.