Will Basel III Spark the Precious Metals
Rowan Crosby • 2 min read
There’s an important event happening today, which many traders have been focused on over the past 12 months.
It’s called Basel III and what it could mean for the precious metals market has many GOLD and SILVER traders on the edge of their seats.
Effectively, Basel III is about changes to major banks and how they measure what they hold. For our purposes, the main areas of interest are:
- The Net Stable Funding Ratio which is clarified as the amount of available stable funding relative to the amount of required stable funding.
- Gold being classified in the same Tier class as cash
- Unallocated Gold only valued at 85% given the haircut vs 100% allocated Gold.
Many traders and investors are unaware that there is a huge discussion going on at the moment surrounding the idea of allocated and unallocated metals. Many bullion banks and places such as JP Morgan, hold what is really synthetic metals or things like ETFs such as GLD and SLV. These things represent metal but are not the same.
In fact, places like JP Morgan, have huge net short positions and many claim they are in fact manipulating the price of precious metals. There is a train of thought that says there are around 500 of these so-called synthetic type products for every 1 real ounce of metal. Hence we are an in interesting supply/demand situation.
If these synthetic products didn’t exist for example, or if something like futures, required physical delivery, what would happen to the price of both Gold and Silver? Likely it would be many multiples of what it is today.
Will Basell III, be the trigger that helps to reduce these unallocated Gold products. Possibly. While this only applies to certain regions at the moment, many more banks will need to comply by years end.
To my mind, this is all very bullish for the precious metals and one that we will be watching closely.