Scissors between physical and paper gold are opening. The change is coming from Switzerland
16. 06. 2021
Purchases of gold are changing, especially for banks. European banks will be bound by a set of new regulations known as Basel III, which will affect the market with precious metals, from 28th June (and banks in the United Kingdom from 1st January 2022). From this moment, gold will be promoted to a first-class asset.
What does it mean?
From the perspective of liquidity and risk, gold is getting to the level of large global currencies in bank assets, for example, American dollar and Euro. Therefore, it is a verified safe and liquid investment, and by its transfer to the first category, it is measured in balance sheets of banks at 100% of its value compared to the original 50%. However, the changes are related only to the allocated gold, which means the gold directly owned by the client, i.e., only physical gold. It is therefore assumed that commercial and centra banks will initiate further purchases soon.
After all, they have been buying since the moment when gold was put into the first category according to Basel III by the decision in 2017. There was a gold rush even in the last year. Central banks have bought 651.5 tonnes of the metal, the most in the last fifty years. The trend proves that gold is expecting a growth period.
On the contrary, paper gold will be declining in comparison with physical gold, and this is why it will be more advantageous to convert your shares in gold into ingots or coins. And the sooner the better. According to the analysis of Andrew Lan from investing.com, it could be the last chance to buy physical gold for such a low price as now. Because demand for this low-risk asset will be growing significantly.
About Basel III
Basel III is a set of international measures implemented by the Basel Committee during the last big financial crisis, which included the fall, for example, of the renowned Lehman Brothers bank. The regulations aim to prevent heavy impacts of the economic cycle recession – crisis. The regulations govern, in particular, the capital adequacy of banks, but also the stress test and assessment of the entire market liquidity.