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This Is Great News For Gold Plays . Bring On Knaften

[Goldy63]

Yup Knaften our Gold play.  Bet Gold starts setting new Highs . Read on . New banking rules, part of a sweeping international accord known as Basel III, will come into effect on Monday and mark a big change for European banks and their dealings with gold — potentially altering the landscape for precious metal demand and prices.

Like many reforms put in place over the past decade that aim to avert another global financial crisis, the new banking rules come with some controversy — and caveats.

Allocated gold, in tangible form, will essentially be classified as a zero-risk asset under the new rules, but unallocated or “paper” gold, which banks typically deal with the most, won’t — meaning banks holding paper gold must also hold extra reserves against it, said Brien Lundin, editor of Gold Newsletter. The new liquidity requirements aim to “prevent dealers and banks from simply saying they have the gold, or having more than one owner for the gold they have” on the balance sheet. 

In response to the global financial crisis of 2007 to 2009, the Basel Committee on Banking Supervision, which sets standards for regulation of banks, developed what is called Basel III. It’s defined by the Bank for International Settlements as an internationally agreed set of measures that aim to strengthen bank regulation, supervision and risk management.

In its essence, Basel III is a multiyear regime change that aims to prevent another global banking crisis, by requiring banks to hold more stable assets and fewer ones deemed risky.

Under the new regime, physical, or allocated, gold, like bars and coins, will be reclassified from a tier 3 asset, the riskiest asset class, to a tier 1 zero-risk weight —putting it “right alongside with cash and currencies as an asset class,” said Adam Koos, president of Libertas Wealth Management Group.

Since physical gold will have a risk-free status, this could cause banks around the world to continue to buy more, Koos said, adding that central banks already have stepped up purchases of physical gold to be held in the institutions’ vaults, and not held in unallocated, or paper form.

Allocated gold is owned directly by an investor, in physical form, such as coins or bars. Unallocated gold, or paper contracts, often are owned by banks, but investors are entitled to that gold, and avoid storage and delivery fees. 

Under the new rules, paper gold would be classified as more risky than physical gold, and no longer counted as an asset equal to gold bars or coins.