Basel proposal could mean big gains for gold
Gold is included in a list of proposed assets that will be treated as the highest form of collateral in over-the-counter derivatives trades in a Basel group proposal released Friday.
Under today’s proposal, regulators would allow companies to use a range of instruments as collateral, including cash, government debt, “high quality corporate and covered bonds,” gold and equities listed on “major” stock exchanges.
The Basel proposal will force banks to hold collateral in the $650 billion over-the-counter derivatives market, which will boost demand for safe haven assets.
The margin requirements will create huge demand, upwards of several trillion dollars according to some estimates, for high quality assets to serve as collateral.
The inclusion is also a sign than Basel officials may upgrade gold to a Tier 1 asset from its current Tier 3 status in a decision officials are pondering.
Placing gold alongside the most-secure assets makes sense and will boost its allure as banks diversify reserve capital to avoid the sovereign bond bubble.