With many thanks to the Gold Survival Guide.
How
the Bankers could be brewing up a game changer for the gold market
...and
the idiots who guide NZ's economy
6
June, 2012
Probably
the most important article we read elsewhere during the week was this
run down on the significance of how the Basel Committee for Bank
Supervision, who create the rules that govern banks, are looking at
turning gold into a 'Tier One' asset.
“Banking
capital adequacy ratios, once the domain of banking specialists are
set to become centre stage for the gold market as well as the wider
economy. In response to the global banking crisis the rules are to be
tightened in terms of the assets that banks must hold and this is
potentially going to very much favour gold. The Basel Committee for
Bank Supervision (or BCBS) as part of the BIS are arguably the
highest authority in banking supervision and it is their role to
define capital requirements through the forthcoming Basel III rules.
In
short, they are meeting to consider making gold a Tier 1 asset for
commercial banks with 100% weighting rather than a Tier 3 asset with
just a 50% risk weighting as it does today. At the same time they are
set to increase the amount of capital banks must set aside as well. A
double win potentially.
Hitherto
banks have been much dis-incentivised to hold gold while being
encouraged to hold arguably riskier assets such as equity capital,
currencies and debt instruments, none of which have fared too well in
the crisis. With this potential change in capital adequacy
requirements. bank purchases of gold would drive up its value
relative to other high quality qualifying assets, increasing its
desirability for regulatory purposes further. This should result in
gold being re-priced to bring it on a par with all other high quality
assets."
The
article goes on to outline just how big an impact this change could
have on the price of gold. You already know our views that gold
is money but this would in effect mean the banks agreeing with the
likes of us, as this change means instead of banks only being able to
value gold they hold at 50% of its market value they can now value it
at 100%. It could be a significant step in the return of gold
to the monetary system (although we’d rather not have the bankers
deciding on this as anything they come up with is sure to still be
advantageous to them).
Central
Banks buying gold big time
Interestingly
many of the nations who are on the BCBS are the very nations who have
been buying gold of late such as Turkey, Mexico, Russia, and China.
So it would be in their interests to raise the importance of
gold.
Specifically
the latest reported figures for Central Bank purchases in March and
April include:
Phillipines
32 tonnes
Sri
Lanka 2.177 tonnes
Turkey 29.7
tonnes
Mexico 2.92
tonnes
Kazakhstan 2.02
tonnes
Ukraine 1.4
tonnes
China
doesn’t report its holdings to the IMF very often but just reported
2 days ago was that in
April 101,758 kgs of gold were shipped to mainland China from Hong
Kong.
So
the odds are a fair chunk of this may have ended up in Central Bank
coffers. This was “up 62% on the previous month and marking
the second-highest monthly exports.”
This
will help to make up for the fact that India is importing less and
likely to be significantly less for the year overall.
Gold
not liquid enough for the RBNZ
It
seems our Reserve Bank of New Zealand doesn’t agree with the Bank
of International Settlements or these other central banks on gold
though.
We’ve
written previously how
the RBNZ doesn’t hold any gold and
how they might want to consider exchanging
some of their foreign currency reserves for gold.
Reader
Jake was kind enough to forward us on an email just received from the
RBNZ in response to his question on whether they had or intended to
buy any gold.
As
Jake put it, “here is their response just for your entertainment:”
Dear
Jake
Thank
you for your question and apologies for the delay in responding.
The
Reserve Bank of New Zealand has not held any gold reserves since
1991.
Our
reserves management responsibilities are set out in the Reserve Bank
Act of 1989 and our foreign reserve targets are specified by the
Minister of Finance. The Reserve Bank is not, at this stage,
planning to include gold in our foreign reserve portfolio. The
Reserve Bank’s position is that gold does not meet our
liquidity requirements.
Kind
regards
Raewyn
Peters
Knowledge
Adviser | Reserve Bank of New Zealand
2
The Terrace, Wellington 6011 | P O Box 2498, Wellington 6140
T.
+64 4 472 2029 | F. +64 4 471 3722
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