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Will adjustments to the Basel III regulations pump gold prices? | The Mesh Report

Will adjustments to the Basel III regulations pump gold prices?

Mike Hammer April 3, 2019 Comments Off on Will adjustments to the Basel III regulations pump gold prices?
Debate rages over whether adjustments to the Basel III regulations will pump gold prices. As this is the first time we’ve talked about Basel III here, we’ll preface with some background: Basel III is essentially a set of rules about how banks can value their assets and liabilities, so they can’t over-leverage themselves and become a risk to the entire system.  Gold bugs got all excited about this back in 2010, because of course gold bugs see gold as a very stable asset.  Holding its value over thousands of years, you’d think the new regulations would give gold a high-value rating. Well, you’d be wrong.  The new Basel III regs would force banks to value gold at 85% market value, which is a higher discount than most commercial paper. Pure BS’ery of course, but you have to remember these rules were written by people who will profit from them, and there’s more profit on a daily basis in churning financial paper than gold. So this Gold Enthusiast predicts these new regulations will lead to more bank-selling of gold, more Russian and Chinese buying of gold, and a bigger crash in Western financial systems when it does finally come.  Expect gold to have the last laugh though, because in crashes gold tends to do really well – meaning it increased in value – while financial paper does quite poorly, as Bear Stearns could attest if they were still around.  The latest Basel III regulations make it quite clear we didn’t learn enough from the last crash so we’re certain to head into another. Today’s featured article walks through the logic; the direct discussion of gold and Basel III starts about halfway down if you want to jump ahead…

 

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