Is that it? It would be easy to say – as with all their other predictions of gold to infinity and beyond – ”wait and see.” But where`s the fun? We would prefer to look at how the banks work and what the regulations say. In a recent Financial Times article, we learned that not only the world`s central banks, but also sovereign wealth funds, are stocking up on record gold reserves amidst uncertainty. The lure of gold, supported by the status of ”port heritage” and rising prices, attracts global government funds and central banks. The article says that ”the gold reserves of the world`s largest public sector investors peaked at an 18-year high by stockpiling the precious metal after the election of Donald Trump and the Brexit vote, which added to geopolitical uncertainty. Basel III will sooner or later have to adapt to reality. There is already talk of Basel IV before Basel III comes into force in 2019. We do not rule out the weighting of gold at 0% of the risks in a Basel IV update and we would not be surprised if this happened during the next financial crisis or shortly thereafter. Banks may own physical and sales futures to make a small spread. In this case, banks are not obliged to set aside additional funds for gold, as the market risk of the gold price is covered. In the language of our time, all this assertion that physical gold is treated preferably with paper is a great nothing. Test your strategy to learn gold with Orbex – open your account now.
For both forwards and options, gold is considered a currency and not a commodity: (b) For stock options and stock indices: the market value of the underlying should be multiplied by 8%.  (c) For foreign exchange and gold options, the market value of the underlying is expected to increase by 8%. d) For commodity options, the market value of the underlying is expected to increase by 15%. www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2018/central-banks-and-other-institutions Is it fair to say that the risk weighting of 0% (or 20%, multiplied by 8% if gold forwards/options) is applied, if a bank uses gold as collateral when borrowing (including deposits of the application)? The Basel III rules abolished the tier 3 capital class and all assets were either under the weight of tier 1 or tier 2. In Basel III, the cash flow rate for gold increases from 50% to 85%. This percentage is used to calculate what is known as a liquidity cushion, known as the Net Stable Financing Ratio (NSFR), which all banks will have to hold from 2018. The higher the NSFR, the more resources are needed to meet the overall needs of the NSFR. It is indicated here that a 0% risk weight will apply to gold, but a 20% discount is also indicated in all models. What is the relationship between the Basel rules and gold? The Basel rules are a series of recommendations on capital requirements for private banks. Bank assets are divided into several groups because of their perceived risk-taking, with bonds and gold in the least risky category.
The Basel I rules required banks to cover 8% of their assets on the basis of a specific formula. The objective was that at least part of all bank assets would be covered by assets, including gold, that were considered safe. A number of commentators have predicted that the rules of the Basel III banking order will blow gold (no, this article does not speak of our view that gold does not rise, that the dollar goes down, that the lighthouse does not rise, it is the ship that sinks in the storm).