Gold market watchers have become increasingly interested in Basel III this year, but what exactly is it and what does it mean for the yellow metal?
Stuart Englert, veteran journalist and author of a number of books, including “Rigged: Exposing the Largest Financial Fraud in History,” sat down with the Investing News Network to share his thoughts.
He explained that Basel III refers to a set of banking standards introduced by the Bank for International Settlements after the financial crisis of 2007/2008. These standards are geared at improving balance sheets and reducing risk in the global financial system.
Basel III is attracting buzz right now because rule changes are set to go into effect in a number of regions in the near future. Europe is the first area to watch, with a rule change quickly approaching on June 28.
“The rule is called the net stable funding ratio, or NSF ratio. And it changes the way that banks classify assets and liabilities, or at least potential liabilities on their balance sheets,” explained Englert. Rule changes will follow next month in the US, and in January of next year in Britain.
What does this mean for the gold market? Englert emphasized that Basel III is a voluntary regulatory framework, meaning it’s up to banking authorities in each country to put standards in place.
If that happens, there should be a positive impact for the yellow metal. Physical (allocated) gold would be classified as a risk-free asset, while paper (unallocated) gold would be considered a liability.
“If Basel III is fully implemented and adhered to, more banks should want to hold physical gold as an asset as opposed to selling, leasing, swapping or trading the unallocated metal or paper derivatives that are now used to manipulate the gold price,” said Englert.
That’s a big “if,” and Englert noted that the implications for the gold price are also up in the air.
“If the rules are fully implemented and adhered to, (Basel III) could end precious metals manipulation, increase physical demand and boost the gold price. If that happens, who wouldn’t want to hold gold? Especially as currencies lose purchasing power through inflation,” he said.
“I hope the central banks are ready to come clean and end the fraud in the global monetary system by imposing some stringent accounting rules and capital requirements — maybe they will, but I wouldn’t bank on it,” added Englert. Watch the interview above for more of his thoughts on Basel III.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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