WHAT IS IN BASEL III?
A silent transformation is about to take place. The price of gold might be permanently affected due to the proposed changes, spearheaded by BIS (Bank of International Settlements), an exclusive group of Central Bank Governors, governed by 58 influential member nations.
Present day banking throughout the world is governed by the guidelines set forth by the BASEL Committee on Banking (of BIS) in the form of BASEL regulations (named after the city of Basel, Switzerland, where this group meets and where the headquarters is). The new BASEL III, proposed to include some radical changes, will change the financial landscape of gold market fundamentally.
ABOUT BASEL
Banks are required to keep provision of capital against
their assets, sketched as Risk Weighted Assets. So, the assets have been
categorized, according to their risks. The more risky an asset class is, the
more provision. First introduced in 1988 to provide a set of minimum capital
requirements for banks, known as BASEL I, it was meant to regulate banking
industry with a set standard worldwide, as part of New World Economic Order. Since
then, BASEL has been considered as global standard for banks on capital adequacy, stress testing and market
liquidity risk. A more comprehensive set
of guidelines, known as BASEL II, were
initiated in 2004. The proposed new changes, coined as BASEL III, are the
offshot of financial crisis the world has experienced since 2008.
Tier I capital (core capital) consists, among others, of treasury securities and mortgage backed securities. Gold used to be considered as tier III capital. Not only that, only 50% of value of gold would be considered, to be included in the capital.
The reality during the last few years have proven to be
otherwise. The present monetary system has infected the value of these paper assets
of tier I capital from inside, leaving their true value minimal. So banks have
realized that whatever has been labelled as
real, is not so. So, they have been compelled to recognize what the true
value is.
Accordingly, the status of gold has been "elevated",
so much so that it will now be part of tier I capital. Not only that,
previously banks were required to keep 4% of tier I capital against their
risk-weighted assets. Under proposed rule, the requirement would be 6% of tier
I capital. The result, obviously is a
rise in demand for elements consisting
tier I. That means, banks would require not only replace a portion of their paper assets with bullions, but may use
it to meet 2% extra need as well. A very bullish sign indeed.
THE NEW GOLD STANDARD
Starting January 1,
2013 when BASEL III becomes effective, it will usher in a new era for gold
market. So, officially from then on,
Gold Is Money. Already banks and central banks throughout the world have
begun to stockpile their reserve for gold, as a result of its full status as a
financial asset. In fact, the World Gold Council revealed that net central bank
purchases in 2011 exceeded 455 tonnes, the largest purchase since 1965. And it
reported banks will purchase 700 tonnes of gold for this year alone.
So, in this process of re-monetization of gold, much events are awaiting to be seen in the forthcoming months.
