Will the date of March 29, 2019 remain in the history of gold? Certainly, because it marks the resurgence of precious metals in the banking and financial system. Indeed, on March 29th, the Basel III agreements, international banking solvency standards issued by the Bank for International Settlements (BIS), the "central bank of central banks", which - in particular - modify the accounting for physical gold, enter into force.
Until now, gold has been classified as a tier 3 asset ("Tier 3") with a risk assessment of 50%, which required banks to tie up equity capital to cover half of the amount held. This did not encourage - and even discouraged - banks from investing in precious metals. From now on, physical gold is classified as a tier one asset ("Tier 1"): it is considered equivalent to cash, i.e. without risk, and therefore without the need to immobilize equity capital.
Here is a strong boost to encourage its retention, to the point that some people talk about the remonetization of gold (Zero Hedge). The monetary authorities understood that liquidity risk was the main threat in the event of a financial crisis, but that gold was never concerned by this risk: no one refuses gold; there is no counterparty risk since it is an asset with an intrinsic value and universally recognized. In addition, the gold market is one of the largest in the world and can absorb large quantities in a very short time. This is an ideal asset in the event of a bank crash.
Moreover, as banks have to increase their capital and "liquidity cushions", it is conceivable that they will become purchasers of physical gold in the coming months and years... Central banks have been leading the way for several years: they bought 651 tons of gold in 2018, an increase of 74% compared to 2017, setting a record since 1971, when President Richard Nixon put an end to the convertibility of the dollar into gold. It is mainly emerging countries that are active, such as China, India, Russia and Turkey, and that also want to move away from the dollar's grip.
According to London precious metals trader Andrew Maguire, several major commercial banks such as Goldman Sachs, JP Morgan, HSBC, UBS, Standard Bank, and Deutsche Bank have already started to accumulate physical gold (King World News).
It is not necessarily the quantities of gold purchased by central banks and commercial banks that will drive up prices, although they obviously contribute to them. What really matters is the paradigm shift, or rather the return to what it has been since time began: gold is THE currency of trust. If commercial banks start acquiring gold, it can be argued that the gap from the end to the convertibility of the dollar into gold is beginning to close. Gold would once again become an asset of choice in the banking and financial system, which would have only positive effects: in the face of mountains of debt and derivatives, of paper money created by creative bookkeeping, there would be at least a little strength somewhere! In any case, this March 29th is a significant signal of buying.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.