Basel III Causing Gold's Volatility?
Basel III: Causing Gold's Volatility?
Palisades Gold Radio: Jun 19, 2021
Tom welcomes a seasoned group of experts on the gold markets to discuss the upcoming Basel III changes to banking regulations and their potential impact.
We are joined by Bob Coleman, Vincent Lanci, Adrian Day, and Keith Weiner.
Keith discusses the reasons for the Basel III regulation in stabilizing the banking system. He argues these regulations will cause banks to be increasingly reluctant to participate in the gold business because of increased costs.
As a result, some of these costs will be passed on and enter the retail markets. The LBMA has an extension on implementation and would prefer to be exempted from the Basel III regulations.
The LBMA may disappear if they have to comply with all these requirements. They have been arguing that there is no default risk with gold. These rules tighten up the market and may increase supply issues for those in the markets.
However, with fewer players, there may be more direct price discovery. In addition, the costs of hedging will rise, and this may kill off some of the marginal players in the industry.
When government intrudes into a market, they add extra friction, resulting in fewer transactions, and those on the margin are often forced out.
Adrian argues that banks aren't likely to acquire gold due to Basel III, contrary to many opinions of so-called experts in the gold space. Banks have lots of options in the tier one assets they can hold, and most banks today have large excess reserves already.
Bob discusses the possible impacts on the US dollar with these regulations. Since late February, there has been a lot of activity in the Repo markets where the bond markets started to crack.
He believes they may be deliberately trying to reduce counterparty risk by deleveraging gold.
Recent moves in gold have seen a move from weak hands to stronger hands. Adrian says, "The recent Fed news stories should have been headlined "Fed won't raise rates for two years." Instead, this market is reacting to thinner volumes, thinner exposure, and we now have a Fed that is beginning to say they will tighten.
Unallocated gold at the bank is not your asset; it's the bank's asset. If you are buying gold as insurance, the last thing you want is unallocated gold. Instead, hold and own physical metal yourself or at a depository in your name.
Time Stamp References:
0:00 - Introductions
1:14 - Basel III & Gold
5:15 - Good For Gold?
10:16 - LBMA & Basel III
13:48 - 85% Reserves?
17:14 - Tying it Together
23:15 - Not A Surprise
24:36 - Gold Deliveries
27:22 - Refiners & Comex
28:36 - Dollar Effects
38:24 - Golds Recent Moves
44:45 - Gold Basis Chart
50:00 - Recent Volatility
1:00:47 - Geopolitical Issues
1:05:02 - Unallocated Gold & Risk
1:09:26 - Final Thoughts
Talking Points From This Episode –
- Basel III Regulations and potential impacts on banks and gold markets.
- Regulation costs may be passed onto retail investors.
- Thoughts on recent volatility in the gold markets and the dollar.
- Risks with treating unallocated gold investments as insurance.