Basel 3 and gold

 

This looks like mostly an accurate assessment, if the regulatory modification is now going to allow Depositories to include a % of physical gold holdings as Tier1 assets priced in the reporting currency terms: 

 “Another benefit for the owner of precious metals will be the absence of monthly metal-smashing done by those trying to manipulate prices lower as option expiry periods get close. When banks hold physical metal as a primary reserve asset, they benefit more from gold’s rise than from a temporary drop in price. Increased gold prices will allow banks to reduce debt and other liabilities on their balance sheets, putting them in better financial positions. This will help create a new reality that aligns the interests of individual physical gold and silver purchasers with the interests of the large institutions holding the gold or silver.”

Read Now: Basel III and Goldhttps://t.co/Mj8tZ6g4Aq#usgoldbureau #gold #silver #preciousmetals pic.twitter.com/ufcVnyATio

— United States Gold Bureau (@USGoldBureau) March 3, 2021

If you look at central banks and their member institutions as monopolist price setters (textbook MMT 101) , I don’t think you would recommend to the Basel 3 people that they allow this regulatory modification... as member banks will perhaps now just keep increasing the price of their gold holdings in their reporting currency terms and eliminate their current leverage problems being imposed on them by central bank reserve asset additions...  iow when central banks add excessive reserve assets now member banks have to reduce risk assets but perhaps going forward they can instead just increase the value of their existing gold holdings to maintain constant leverage ratio...  somewhat a perverse incentive type thing...

BUT the Basel 3 people probably don’t look at it that way they think it is all some sort of a “free market!” and the banks will be at the mercy of the figurative “gold vigilantes!” or something... just like they do interest rates... rather than central banks and their member institutions possessing monopoly powers...

This could get interesting... requires more analysis... not a recommendation to do anything...