Gold: The Solution To The Banking Crisis?

Tyler Durden's picture

Authored by Eric Sprott and David Baker of Sprott Global Resource Investment,

The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. It is part of the Bank of International Settlements (BIS) and is often referred to as the Central Banks’ central bank. Ever since the financial meltdown four years ago, the Basel Committee has been hard at work devising new international regulatory rules designed to minimize the potential for another large-scale financial meltdown. The Committee’s latest ‘framework’, as they call it, is referred to as “Basel III”, and involves tougher capital rules that will force all banks to more than triple the amount of core capital they hold from 2% to 7% in order to avoid future taxpayer bailouts. It doesn’t sound like much of an increase, and according to the Basel group’s own survey, the 100 largest global banks will only require approximately €370 billion in additional reserves to comply with the new regulations by 2019. Given that the Spanish banks alone are believed to need well over €100 billion today simply to keep their capital ratios in check, it is hard to believe €370 billion will be enough protect the world’s “too-big-to-fail” banks from future crises, but it is indeed a step in the right direction.

Initial implementation of Basel III’s capital rules was expected to come into effect on January 1, 2013, but US banking regulators issued a press release on November 9th stating that they wouldn’t meet the deadline, citing a large volume of letters (ie. complaints) received from bank participants and a “wide range of views expressed during the comment period”. It has also been revealed that smaller US regional banks are loath to adopt the new rules, which they view as overly complicated and potentially devastating to their bottom lines. The Independent Community Bankers of America has even requested a Basel III exemption for all banks with less than $50 billion in assets,“in order to avoid large-scale industry concentration that would curtail credit for consumers and business borrowers, especially in small communities.” The long-term implementation period for all Basel III measures actually extends to 2019, so the delays are not necessarily meaningful news, but they do illustrate the growing rift between the US banking cartel and its European counterpart regarding the Basel III framework. JP Morgan’s CEO Jamie Dimon is on record having referred to Basel III regulations as “un-American” for their favourable treatment of European covered bonds over US mortgage-backed securities. Readers may also remember when Dimon was caught yelling at Mark Carney, Canada’s (soon to be former) Central Bank Governor and head of the Financial Stability Board, during a meeting in Washington to discuss the same topic. More recently, Deutsche Bank’s co-chief executive Juergen Fitschen suggested that the US regulators’ delay was “hurting trans-Atlantic relations” and creating distrust... stating, “when the whole thing is called un-American, I can only say in disbelief, who can still believe in this day and age that there can be purely European or American rules.” Suffice it to say that Basel III implementation has not gone as smoothly as planned.

One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a “zero percent risk-weighted item” in their proposed frameworks, which has launched spirited rumours within the gold community that Basel III may define gold as a “Tier 1” asset, along with cash and AAA-government securities. We have discovered in delving further that gold’s treatment in Basel III is far more complicated than the rumours suggest, and is still, for all intents and purposes, very much undecided. Without burdening our readers with the turgid details, it turns out that the reference to gold as a “zero-percent risk-weighted item” only relates to its treatment in specific Basel III regulation related to the liquidity of bank assets vs. its liabilities. (For a more comprehensive explanation of Basel III’s treatment of gold, please see the Appendix). But what the Basel III proposals do confirm is the regulators’ desire for banks to improve their liquidity position by holding a larger amount of “high-quality”, liquid assets in order to improve their overall solvency in the event of another crisis.

Herein lies the problem, however: the Basel III regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios. As we discussed in our August newsletter entitled, “NIRP: The Financial System’s Death Knell”, the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations. Although we have no doubt in the ability of governments’ issue more and more debt to satiate that demand, the captive purchases by the world’s largest banks may turn out to be surprisingly high. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs… AND the new Dodd Frank rules, which will require more government bonds to be held on top of what’s required under Basel III, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all. This is where gold comes into play.

If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the “liquidity trifecta” of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold? From a purely ‘opportunity cost’ perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bonds – if the banks are given the freedom to choose.

The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. This is why non-Western central banks are on track to buy at least 500 tonnes of net new physical gold this year, adding to the 440 tonnes they collectively purchased in 2011. In the un-regulated world of central banking, gold has already been accepted as the de-facto forex diversifier of choice, so why shouldn’t the regulated commercial banks be taking note and following suit with their balance sheets? Gold is, after all, one of the only assets they can all own simultaneously that will actually benefit from their respective participation through pure price appreciation. If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely… but just a thought).

So far there have only been two banking jurisdictions that have openly incorporated gold into their capital structures. The first, which may surprise you, is Turkey. In an unconventional effort to increase the country’s savings rate and propel loan growth, Turkish Central Bank Governor Erdem Basci has enacted new policies to promote gold within the Turkish banking system. He recently raised the proportion of reserves Turkish banks can keep in gold from 25 percent to 30 percent in an effort to attract more bullion into Turkish bank accounts. Turkiye Garanti Bankasi AS, Turkey’s largest lender, now offers gold-backed loans, where “customers can bring jewelry or coins to the bank and take out loans against their value.” The same bank will also soon “enable customers to withdraw their savings in gold, instead of Turkish lira or foreign exchange.” Basci’s policies have produced dramatic results for the Turkish banks, which have attracted US$8.3 billion in new deposits through gold programs over the past 12 months - which they can now extend for credit. Governor Basci has even stated he may make adjusting the banks’ gold ratio his main monetary policy tool.

The other banking jurisdiction is of course that of China, which has long encouraged its citizens to own physical gold. Recent reports indicate that the Shanghai Gold Exchange is planning to launch an interbank gold market in early December that will “pilot with Chinese banks and eventually be open to all.” Xie Duo, general director of the financial market department of the People’s Bank of China has stated that, “[China] should actively create conditions for the gold market to become integrated with the international gold market,” which suggests that the Chinese authorities have plans to capitalize on their growing gold stockpile. It is also interesting to note that China, of all countries, has been adamant that its 16 largest banks will meet the Basel III deadline on January 1, 2013. We can’t help but wonder if there is any connection between that effort and China’s recent increase in physical gold imports. Could China be positioning itself for the day Western banks finally realize they’d prefer gold over Treasuries? Possibly – and by the time banks figure it out, China may have already cornered most of the world’s physical gold supply.

If global banks’ are realistically going to improve their balance sheet diversification and liquidity profiles, gold will have to be part of that process. It is ludicrous to expect the global banking system to regain a sure footing through the increased ownership of government securities. If anything, we are now at a time when banks should do their utmost to diversify away from them, before the biggest “crowded trade” of all time begins to unravel itself. Basel III liquidity rules may be the start of gold’s re-emergence into mainstream commercial banking, although it is still not guaranteed that the US banking cartel will adopt all of the Basel III measures, and they still have years to hammer out the details. If regulators hold firm in applying stricter liquidity rules, however, gold is the only financial asset that can satisfy those liquidity requirements while freeing banks from the constraints of negative-yielding government bonds. And while it strikes us as somewhat ironic that the banking system may be forced to turn to gold out of sheer regulatory necessity, that’s where we see the potential in Basel III. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.

Appendix: Gold’s treatment in Basel III

Basel III is a much more complex “framework” than Basel I or II, although we do not claim to be experts on either. It should also be mentioned that Basel II only came into effect in early 2008, and wasn’t even adopted by the US banks on its launch. Post-meltdown, Basel III is the Basel Committee’s attempt to get it right once and for all, and is designed to provide an all-encompassing, international set of banking regulations designed to avoid future bailouts of the “too-big to fail” banks in the event of another financial crisis.

Without going into cumbersome details, under the older Basel framework (Basel I), the lower the “risk weighting” regulators applied to an asset class, the less capital the banks had to set aside in order to hold it. CNBC’s John Carney writes, “The earlier round of capital regulations… government-rated bonds rated BBB were given 50 percent riskweightings. A-rated bonds were given 20 percent risk weightings. Double A and Triple A were given zero risk weightings — meaning banks did not have to set aside any capital at all for the government bonds they held.” Critics of Basel I argued that the risk-weighting system compelled banks to overweight their exposure to assets that had the lowest riskweightings, which created a herd-like move into same assets. This was most evident in their gradual overexposure to European sovereign debt and mortgage-backed securities, which the regulators had erroneously defined as “low-risk” before the meltdown proved them to be otherwise. The banks and governments learned that lesson the hard way.

Basel III (and Basel II) takes the same idea and complicates it further by dividing bank assets into two risk categories (credit and market risk) and risk-weighting them depending on their attributes. Just like Basel I, the higher the “riskweight” applied to an asset class, the more capital the bank is required to hold to offset them.


It is our understanding that gold’s reference as a “zero percent risk-weighted asset” in the FDIC and BIS literature only applies to gold’s “credit risk” - which makes perfect sense given that gold isn’t anyone’s counterparty and cannot default in any way. Gold still has “market-risk” however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don’t know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community’s conjecture on gold as a “Tier 1” asset has been misleading. There really isn’t such a thing as a “Tier 1” asset under Basel III. Instead, “Tier 1” is merely the ratio that reflects the capital supporting a bank’s risk-weighted assets.

HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidity of the bank’s assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).


Just as Basel III requires risk-weights for the asset side of a bank’s balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up.

This is where gold’s Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity “haircut”, which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III’s LCR and NSFR ratios. And as it turns out, the liquidity definitions that will guide banks’ LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold’s liquidity “haircut” from 50% to something more reasonable, given gold’s obvious liquidity superiority over that of equities and bonds.

The only hint we’ve heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity “haircut”, but we have not been able to confirm this with either the Basel Committee or the FDIC. In fact, all inquiries regarding gold’s treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.

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Bansters-in-my- feces's picture

I licked my Gold today....
MMmmm...mmmmmm Good.

markmotive's picture

Gold alone won't save you. But guns and ammo will help you guard your gold, food, family, property, dog, etc.

Another financial collapse could come with massive deflationary forces if the banking system adopts a gold standard. The second Great Depression won't be as pretty as the first.

Supernova Born's picture

Which of these things is not like the others?

Oh regional Indian's picture

In a word...NO.

Gold is the greatest head-fake since....well....Gold.

Little people never win with Au. It's big people money, little people's burden.

India is a shining example of that. Fooled by gold. They're peddling it in to Gold backed loan sharks at obscene interest rates as inflation bites on dailies/housing etc.

Old game, old, old game.

The ONLY solution to the banking crisis is de-globalization, planned de-growth of the Supply side monster, banks writing off book entry loans, steady asset re-pricing (down-pricing), allowing deflation to take it's natural course...cutting off the carry trade cheap monies for connected speculators...

Oh, and letting a couple of countries/currencies that have raped the world for a hundred or so years fucking well explode. It's a-ok, the rest of the world will carry on while said nations and their citizens deal with a healthy dose of reality.

like that.


dlmaniac's picture

Gold cannot fix lazyness. If a nation is full of suckers living on welfare then there's no fix until this laziness dissolves one way or another.

Oh regional Indian's picture

I'll assume you are speaking of the westrn half here. In India it's not the lazy people, it's hard-working common folk who have long bought the gold story. And stored it,...and stored it and stored it... only to be eaten alive by inflation and forced to take out 15%-30% (REAL RATE) loans against it. Loans that will not be repaid since food is headed only one way...up. Oil is headed up. Housing is astronomical already and still rising.

And Gold loan companies are poorly regulated, which means in their upcoming crash, said gold will go further up the food chain.

The deepest question is really why are CB's vaccuming it up.... except for periods of convenient madness like Gordon Brown in 1999, India in 1989/1990 etc.

It's a game whose rules are totally obscure to us.


CunnyFunt's picture

Oh Regional Indian, since India and China were among the last to abandon a silver standard, in your opinion, does there exist an active historical memory in India and China of the demonetization of silver which resulted in a great transfer of wealth from east to west?

Oh regional Indian's picture

CunnyF, I'll answer you slightly tangentially.

Historical memory in India has been one of the most contorted, twisted and erased in probably all of the colonial conquests of the british empire (probably because it was so old and deeply engrained).

Indian history has been "directed" into making Indians at large, largely blind to our real history.

So, in a word, no. Even gold and the great transfer of Indian bullion that happened through out the 1930's as britain played the classic Capital COntrols+Export Controls+Artificial Food scarcity game (to pay off it's war debts to the BAnkers) to force people to turn in their gold by the tonne, which was then sold cheaply to england by treasonous Indian bullion merchants like the Birlas (now a major industrial family due to said treason)...., long and ugly story.

So, again, no.

I imagine it's the same with China as it's silver was impounded for opium (grown in India by the same treasonous rats) over the course of the two Opium wars....

When your next meal is at risk and government paper is what you pay to get it, a couple of generations and reality is all but forgotten.

Modern indian's know nothing of reality, real money, real world, real history... Zero.



CunnyFunt's picture

Thanks for that. It seems that way in every corner of the world now. It's sad but true.

Oh regional Indian's picture

Sure CunnyF, sad but true is true.

And it will take a couple of generations at least to bring sanity back, but who has the time anymore? Or the will/way or means?


CunnyFunt's picture

Right, time decay can be an awful factor in options, and all options expire.

Oh regional Indian's picture

Interesting little social commentary as an aside.

America wakes up and the down arrowing begins in earnest. If this space is a fractal reflection of the American mind-set, it explains a lot.



EnslavethechildrenforBen's picture

A Gold Standard, if used not abused, does in effect work perfectly.

Physicz bitches...

e-recep's picture

 a system that does not get abused eventually never existed, never will exist.

blindman's picture

Steely Dan live plays "Time Out of Mind"
Steely Dan - Only A Fool Would Say That
( this is a bit cheeky, revealing and funny )
Bob Dylan - Not Dark Yet ( time out of mind )
...time is running away ... ?

aleph0's picture

So I was told ( and shown ) by well-to-do Indians in New Delhi :
Some British soldiers used spoons to prise the gems from the Hindu Temple walls before leaving.
The higher ranks & politicos  left with large coffers of precious metals and gems.
So it does seem that they are very aware of the Scams / Theft from the West ... and are not likely to forget.

Oh regional Indian's picture

Interesting aleph,

But propaganda, relentless brainwashing propaganda is so powerful a tool that Iranians love to run to the US if allowed, Japanese love and uphold the US as a beacon of something, the UK is full of subservient Indians and speaking from deep personal experience, most Indians still bow and scrape to the white man.

Interesting, eh?


CunnyFunt's picture


Nor can it fix ignorance.

jekyll island's picture

Take one tonne of gold, drop it on a banker.  Repeat until you achieve the desired results.  Gold can resolve the banking crisis.  By the way, this will work on lazy entitlement mooches too.  

falak pema's picture

Ori, I'm no believer in shooting stars going Nova, either of Bossa or Scotia variety. Super is another matter and beyond my skills of comprehension; as its God's or nature's work! 

Nor do I believe in the earth's equatorial/vertical divide between good and bad, east and west, sloth and intelligence.

Destiny is as man-made invention in my book; but its intimate conviction and gut feeling; as we are all blind, in the true geological scale sense. So I won't dwell on that from a philosophical angle. Let Karma speak for itself! 

But I do read history for what its worth  and try and see past trends to show the human dynamics of the  future. 

In the long historical trend, 1492 was a landmark year : age of religious intolerance in Spain and then in Europe, convoluted in religious wars, and discovery of New World. It led to western pre-eminence to this day. That cycle of 500 hundred years, built on Conquistador extraction of wealth, subsequent hyperconsumption of earth's fertile crust in the industrial age, may now be hitting a NATURAL asymptote. 

If that is true message of history then the new age will swing back from west to east, as people don't change EXCEPT under duress; as we see only too clearly in the PAx Americana meltdown today. We are heading to a new type of civilization paradigm, Copernician gamechanger, in these peak resources tipping times. And those stuck in past paradigm often have trouble to cut and run, to reinvent their past momentum. That is what 1492 taught us. Stamboul became outdated.

We don't know where the new frontier will emerge truly; all indications are that the west still has the techological edge but has lost its ethical value systems; its most precious heritage since its civilization began. As civilization is firstly homo-centric not techno-centric. Means and Ends...value systems define human effort. 

Who can tell how the great circle of life will spin; but spin it will and its downward momentum is lurking ominously. 

To come back to gold and stories told of Cressus...


Oh regional Indian's picture

Indeed Falak. The inevitable swing of the pendulum.

And it's clear that it is a battle, age old at that, between heart and mind.

The east, by sins of omission or commission, is as "lost" now if you will, as the west is. Or has lost it under the boot-heel of some really vile domination, generationally.

Africa is such a case in point, overall.

Let us see.

And what were the stories told of Cressus?



falak pema's picture

it all ended in the sand...Cresus's dreams, his progeny's screams. 

The Lydian kingdom (Anatolia) lost to the Persians of Cyrus. His riches came from the sandy beds of the river Pactole. Full of gold, richest man of ancient times according to Herodotus. 

That if the tresor of Cresus
And al the gold Octovien,
Forth with the richesse Yndien
Of Perles and of riche stones,
Were al togedre myn at ones...

english poem of ye olde times! 

Oh regional Indian's picture

AH, thanks for that Falak.

Ye olde english had a metre and timbre that was rich, unlike this fallen version we trade today.


JOYFUL's picture

In truth, ol' sock, the rivers of Lydia ran full of electrum, nature's finely balanced mix of gold 'n silver, and which was  cast into the natural currency of the people afore certain antecedents of TPTB got it into their heads to invent excuses why that perfect blend was not good enough...and that some kind of rake off in the form of seigneurage was good n necessary to keep the wheels of commerce grinding....

but that's just an empirical observation spun into what you will doubtless cast* as another 'conspiracy theory' and dismiss along with every other bit of evidence of the longstanding efforts of certain elements hiding amongst us to turn the garden of eden we were give into a veritable hell upon earth!

*be wary, squire, that such doubtless casting be a double-edge sword which can cut  to the quick one's own cred...and cast doubt upon those who serially deny the forest for the plethora of trees!

falak pema's picture

Singing L. LaRouche's twentieth century song and Coleman's powerful mustard concoction is a bit like hoisting Hubbard's Dyanetics cubbard onto gullible America, as new beacon of Scientology torch of tomorrow's age; the new dawn of enlightenment's dogma, all neatly packaged like ONLY America knows how to do best into a seamless industrial package. 

I don't doubt the powerful thesis of the LaRouche school to provide an incisive analysis of monetary trends and their interplay with western geopolitics over the centuries. What I doubt and contest is the right of people to bend History to suit their purpose, however fine that purpose be. A global scheme of world governance hatched in second half of twentieth century, based on inuendo and fragments of historical interplay, is great drama that spices the analysis of deeper designs; but it is NOT history. Apple-like ideological  I-pad for the agnostic lost in materialistic trauma. 

What I am saying simply put is that making a dogmatic scheme to make history rhyme with it, to demonstrate the so called perennial crime against western civilization, is as hocus pocus as saying the seven sacrements of christianity decide your fate in the after world; wherever that be : in the heavens above or inferno below.

War without end and the Jewish Khazarian scapegoat. Ride on pale rider of mystification. 

War Without End :: View topic - John Coleman & Lyndon Larouche - the Jewish theme within

War without end has other simpler motivations in History and Man's psyche. And its not a global unending consiparcy, its the essence of individual man wanting to be OLIGARCH. 

JOYFUL's picture

I was waiting for you to jump on the Larouche thing: classic case of throwing the baby out with the bath water...say what you will about LL and his cultist followers, the finest research(outside of AJ McCloys classic  -The Politics of Heroin in SE Asia) into the drug running mafia scam that is the USA government has been done by same...the work on Venice is equally top notch...your effort to dismiss it based upon provenance is a lowering of your own standards that will not serve you credit.

Similarly, whilst I despise the Scientology cult, in one of his few lucid moments. LRon managed to concoct simply the best, most effective method of purging drug residues and heavy metal toxins from the body...the Purif the end, what mattered to me was that it worked, not who dreamed it up...

but it takes an open and enquiring mind to be able to sift through these kind of wheat versus chaff situations ...I fear that your expected easy swing has proven another great miss! You are left merely dismissing one so-called 'dogmatism' for your own favorite...quite a dog's breakfast I should say!

Please be so kind as to retrieve your sword from the ground and replace it in your scabbard...before you fall on it...I have no wish to see you induced to commit hari-kari mon frere.

SafelyGraze's picture

after holiday-related conversations about money n finance n economy n blah blah blah ..

have lost patience with any more "gold-backed" comment about anything


if I borrow your rake and promise to pay it back, is the promise "rake-backed"?


how about I borrow (i.e. take i.e. confiscate i.e. impound i.e. civil litigate i.e. eminent domain i.e. executive order i.e. vaporize i.e. commandeer i.e. muster) your damn rake

then I tell you "I promise"

and you say "you promise *what*"?

and I tell you i just "promise"

what would that be? a non-rake-backed promise? 

if you ask for your rake back, I will laugh. 

I sold it. 

also, you don't mind if I "borrow" your car do you? "I promise"


Gazooks's picture

..., or your wife, your children, your dog or your life.

bigdumbnugly's picture

yeah that's pretty cool bansters but my dog can do you one (well, two actually i guess) better.

why does he do it?     because he can of course.

ebworthen's picture

Tangible value always trumps promised value.

The promise of a kiss is nothing compared to a real kiss.

crusty curmudgeon's picture

"only time will tell if gold gets the proper liquidity treatment it deserves"

That time is near.

Snidley Whipsnae's picture

 From the text... China may have already cornered most of the world’s physical gold supply...

It's hard to believe that this sentence was incorporated when we know that the population of India has accumulated over 20 thousand tons of gold... and probably much more since this is an estimate and does not account for religious cults and gold smuggled into India.

I believe that it's important to remember that the Basel Committee on Banking Supervision would not be attempting to incorporate gold into the financial system in any capacity if the system were not under threat of collapse.

The pig-headed bankers of the West, especially those on Wall St, are fighting the proposed new rules tooth and nail because they recognize that gold incorporation would make it difficult to 'privatize the gains and social the losses'... as they have done since the incept of the Federal Reserve.

But, in the long (actually not so long now) run, gold will reincorporate itself into the banking system and world financial system regardless of what banking regulators do or say.

Mr Market always wins and when paper fails banks and people always turn to gold and silver. PMs are a dose of honest money and, as always, they will be required to entice populations back to banks after the collapse.


LetThemEatRand's picture

This is the program where we see the woman in Gold.

newengland's picture

A word to the wise:

Gold, Tier 1 asset (BIS). Nuff said.

DoChenRollingBearing's picture

Of course gold should be treated as at least the equal in quality to cash and sovereign debt.  Duh!  

But, of course something this big and complicated (Basel III) with so many moving parts is hard for a poor Bearing to judge.

On the other hand, when I was in Italy interviewing that big gold buyer in Rome, he answered "Banks" first when I asked him who was buying the gold from the refiners that THEY (Compro Oro = We Buy Gold) sell to.  "China" and "India" were next.  Banks!

fredquimby's picture

Banks need gold so they can sell it to people like me! I know quite a few folk now who are regularly squirreling away a gram or two every month.....We can buy it OTC in Switzerland. 1g, 2g, 5g, 10g or bigger....

Here is my latest addition:



Snidley Whipsnae's picture

DoChen... BANKS! It depends on one's definition of a bank. The Mid East oil rich countries and China have soverign wealth funds and they can buy/sell without effecting the balance sheet of the soverign central bank.

In fact, often the central bank of a soverign does not know what the soverign wealth fund has been accumulating/selling until assets are transfered to the central bank. We have seen this happen in China and in the Mid East most recently when a soverign announced that they had discovered a several hundred tons cache of gold that the central bank did not know about.

So, the PBoC probably does not know how much gold they have until the soverign wealth fund announces a transfer of gold to the PBoC. I have no idea who makes the decision about when to announce and transfer but it comes from a higher authority than the central bank since the announcement has political and financial ramifications... imo.

USS Bernanke's picture

Why consider gold when you can print unlimited amounts of Risk Free assets.


mr. mirbach's picture

"As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios." 

Central Bankers cannot own governmets unless they buy bonds.

Urban Redneck's picture

They can just have their member banks buy the local politicians.  In in the case of BIII Jamie already owns Timmay's ass and now JPM doesn't have to take shit UST off the FEDs balance sheet and keep them on their own balance sheet (for now).

Caviar Emptor's picture

Gold will appreciate in this biflationary environment. It is a hedge against the inexorable deterioration in the buying power of currency. And a hedge against them doing something really stupid. 

Hi Ho Silver's picture

My chickens are appreciating too. My hedge against hunger.


And of course they are going to do something really stupid. That's one of the first criteria for anything they do, it must be really stupid.

proLiberty's picture

""As we discussed in our August newsletter entitled, “NIRP: The Financial System’s Death Knell”, the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations..."


Add to this the state regulatory requirements on insurance companies that generally must hold the bulk of their reserves in the form of approved instruments, where the regulator leans heavily on his preference for Treasury instruments.  But this is no surprise since the entire regulatory, accounting and audit environment is fixated on nominal dollars (or Euros, etc.), without any care as any change in wealth the money represents.   


Snidley Whipsnae's picture

... But this is no surprise since the entire regulatory, accounting and audit environment is fixated on nominal dollars (or Euros, etc.), without any care as any change in wealth the money represents...

Because their balance sheets are not structured to reflect any but nominal fiat. iows, the currency units on the balance sheets are simply units. Neither the balance sheet nor the bank cares what purchasing power each unit represents... in theory.

Also, it's interesting that no mention was made of the way gold is treated in Europe vs how gold is treated by the Fed. Gold is carried on balance sheet in Europe and is revalued every quarter to reflect changes in it's value in Euro currency. otoh, the Fed carries gold at the same price as ever; ie, about $42 per oz... but the Fed won't lease or sell gold for that amount.