Gold & Basel III’s Trillion-Dollar Question
The comments below are an edited and abridged synopsis of an article by Matthew Piepenberg
The Basel III regulation to make banks safer has begun in the European Union (July 1 for US banks, January 1, 2022 for UK banks). The question for gold investors is, what next? The short answer is that gold will rise (but don’t expect a straight line or zero discomfort/volatility). The longer answer deserves more context.
Piepenberg discusses: What is Basel III; is Basel III making the world safer for honest banking; re-arranging (classifying) the deck chairs on the Titanic; Basel III and precious metal pricing; and putting it together.
A wide range of opinions and possibilities apply to the short- and long-term effects of Basel III on gold and silver. Expect increased price volatility, but the arc of history, improved price discovery and the natural laws of supply and demand make gold a critical asset going forward.
Gold acts as insurance against a system on fire. The financial system, mismanaged for years by the BIS and others, is at risk levels never seen before, and this explains what prompted Basel III’s arrival.
Put another way, the architects of the global financial crisis (an unprecedented global debt disaster coupled with a risk-asset mega bubble) are worried about the catastrophe they have created.
Whether Basel III brings calm or mayhem to the gold market, there is no doubt that the only assets to bring individual calm in this broken financial setting are the same assets banks are currently doing their best to regulate: gold and silver.
Ironically, and despite Basel III’s attempt to make allocated gold a risk-free priority over unallocated paper gold on their balance sheets, we know that the allocated gold held by customers is not owned by the customers, but by the banks themselves.
Physical gold was a safe asset long before Basel III made it Tier 1; also, non-yielding physical gold is a far superior asset to negative-yielding sovereign bonds.
The central banks can’t deny this, which is why they’ve been purchasing more gold than Treasuries.