The New CS Board

[jumanji0881]

re: Basel 3 -
MAY 20, 2021
Will Basel 3 Boost Gold and Silver Prices? : https://www.numismaticnews.net/coin-market/will-basel-3-boost-gold-and-silver-prices

Excerpt:
Back to the Basel 3 accord. The most important change for precious metals is that banks would be required to hold reserves against their assets. Under the coming regulations, banks would count unallocated precious metals at 85 percent of their value on the bank’s books in making the determination of how much it needs to hold in reserves against these assets.

However, banks would no longer be able to consider any of the liability for unallocated precious metals as part of their required reserves.

Therefore, to comply with Basel 3 regulations, banks would have to either create a huge increase in their shareholders’ equity to provide the required reserves or they will be forced to sharply reduce or completely eliminate their trading in unallocated precious metals.

Will these banks take title and custody to many times the quantity of physical precious metals that they now hold? For all practical purposes that isn’t possible because there just aren’t enough physical metals available. Another obstacle is that these banks simply do not have the storage capacity to hold sufficient inventory to provide sufficient reserves for their precious metals assets.

The practical effect of this part of the new Basel 3 regulation would be to almost completely wipe out the trading of unallocated precious metals in the London and New York markets. About the only trade that would survive would be for allocated metals.


Banks in continental Europe will implement the changes in precious metals trading as of the end of June this year. British banks will be required to adopt the new standards by Jan. 1, 2022. At least, those are the current scheduled implementation dates.

With the elimination of most trading in unallocated storage, the U.S. government could lose its primary tactic of suppressing gold and silver prices.

Between the increased demand for physical precious metals and the elimination of the use of unallocated precious metals to suppress prices, gold and silver prices might undergo huge increases.

This impact of these forthcoming market changes is so enormous that on May 4, 2021, the London Bullion Market Association and the World Gold Council submitted a paper to the Prudential Regulation Authority, the United Kingdom’s regulator of banks and the financial sector, asking for the changes in Basel 3 standards in trading unallocated precious metals be eliminated. This paper claimed that implementing the new regulations would undermine the ability of banks to clear and settle precious metals trading, drain liquidity from this market, sharply increase financing costs of such trades and would limit central bank operations with precious metals.

The claim that the London Bullion Market Association may be almost forced to cease operations without this waiver also means that the COMEX trading of unallocated metals would also come to a virtual standstill.

How likely is it that the near-term implementation of the Basel 3 standards for trading unallocated precious metals will occur? Not enough to eventually matter, as the most likely difference would simply be another delay in the implementation date.

But, even if the implementation dates are once more postponed, that deferral might only apply to British banks.

Another possible change suggested in the LBMA and WGC paper is to instead adopt the Swiss interpretation which considers it applicable only to unbalanced positions on both sides of a bank’s balance sheet. That might not provide much leeway.

Still, time is running out to try to change the regulations before the first of these standards applies to continental European banks at the end of June this year.

Right now, the COMEX currently has about $24 billion in short sales of gold futures contracts and another $1.6 billion in short sales of silver futures. There will almost certainly be pressures for short sellers to cover these COMEX contracts as continental European banks scramble to cover their short positions.

However this eventually turns out, the ultimate result is almost certain that gold and silver prices will climb far higher, perhaps multiples of current levels, within the next six months to two years.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), Professional Numismatists Guild, Industry Council for Tangible Assets and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com.

BY PATRICK A. HELLER