THE GEORGE ORWELL, DUNDEE – In our first episode of Southbank Live, gold expert John Butler explained how the new banking rules known as Basel III could lead to deep structural changes in the gold market. You can watch it here if you didn’t make it last time – it’s a fascinatingly esoteric topic, involving the vast amount of “paper gold” (unbacked gold derivatives) that gets traded in the London Bullion Market.
My colleague Nickolai Hubble over at Fortune & Freedom described the potential consequences of these new rules destroying the paper gold market – and leading to higher gold prices. In his words, the “paper gold glut” could be delivered a “golden paper cut”.
As he said in a note to Gold Stock Fortunes readers a couple weeks back:
These shifts will either upend the gold market in a spectacular fashion, add a hidden tailwind to gold behind the scenes, or have no impact at all. It just depends on who you ask…
Here’s what we do know: Basel III changes how gold is dealt with on the asset side of a bank’s balance sheet, and on the liability side. Because banks are a crucial player in the gold market, this could amount to a dramatic shift.
My view is that the changes will be a modest tailwind for gold, but also a small headwind for gold miners and other gold market participants via rising hedging and liquidity costs. These conclusions are uncertain and highly debateable, not to mention hotly debated. In other words, I am not sure myself.
But, because of the small potential for a significant disruption to the gold market from Basel III, all gold investors need to understand what is about to happen…
Interestingly, over the past week the banking regulator has announced that British bullion banks will be exempt from the new rules, amending them to include what it calls an “interdependent precious metals permission”.
The plot thickens. Gold investors have been anticipating the rollout of Basel III for several years now – I remember reading articles all about the bank rules when I first arrived in the precious metals space. So where does this lead the gold market? Back to “standard operating procedure”?
That’s what I’ll be discussing in tomorrow’s episode of Southbank Live. We’ll be broadcasting on YouTube at 10am tomorrow morning – you can tune in here:
If you can’t make it, have no fear – a recording will be made available shortly after we finish the show, and you can send any questions you’d like me to ask John at my email address: [email protected].
If you do like this content, I encourage you to check out our Fortune & Freedom podcasts my colleague Nickolai Hubble runs with Nigel Farage, which have seen a recent surge in popularity – you can listen to their latest here, and to stay abreast of their future broadcasts, you can sign up here.
All the best,
Boaz Shoshan
Editor, Capital & Conflict
Category: Investing in Gold