Basel III – Detailed Analysis and Effect on Gold and Silver


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Basel 3 – General Video:

Basel 3 – Supervision 2017 PDF:

Basel 3 – Supervision 2018 PDF

Today is Monday 25th March 2019 and we are discussing Basel III and its potential impact on gold and silver.

Yesterday we produced a video on this subject to all members (link below this video) but for inner sanctum members we are going a little deeper.

So, what is Basel III?

Well let’s address who is responsible for it.

Basel by its name is a prominent city in Switzerland. Here sits the Headquarters of The Bank for International Settlements. It was founded in 1930 out of the Hague Agreements of that year and took over the role of the Agent General for repatriation in Berlin.

Today its role has changed and is highlighted on its website as being

“to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.”

Despite what we heard from one channel purporting to know about these things it is not owned by the Rothschilds but by 60 Central Banks representing countries around the world and jointly account for approximately 95% of GDP – so very influential indeed.

With regard to banking activities, their customers are central banks and international organisations. They do not accept deposits from, or provide financial services to, private individuals or corporate entities.

Basel I II and III are the products from the Basel Committee – initially named the Committee on Banking Regulations and Supervisory Practices – which was established by the Central Bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets (notably the failure of Bankhaus Herstatt in West Germany).

Since its inception, the Basel Committee has expanded its membership from the G10 to 45 institutions from 28 jurisdictions. At the outset, one important aim of the Committee’s work was to close gaps in international supervisory coverage so that (i) no banking establishment would escape supervision; and (ii) supervision would be adequate and consistent across member jurisdictions.

Basel III came about as the Committee’s response to the 2007-09 Financial Crisis.
According to the BIS website:
‘Even before Lehman Brothers collapsed in September 2008, the need for a fundamental strengthening of the Basel II framework had become apparent. The banking sector entered the financial crisis with too much leverage and inadequate liquidity buffers. These weaknesses were accompanied by poor governance and risk management, as well as inappropriate incentive structures. The dangerous combination of these factors was demonstrated by the mispricing of credit and liquidity risks, and excess credit growth.’

Now all of the fuss that has been generated recently has been the result of Gold historically being classified as a Tier 3 asset; when determining how much money a bank can loan, (as a bank’s capital or reserve requirement is taken into account in this assessment) the bank’s gold holdings have traditionally been discounted 50 percent of the current market value. Its movement under Basel III from a Tier 3 category to a Tier 1 category means that the 50% valuation reduction is removed and so gold is accounted for at full current price and this takes effect from 31st March 2019.

This has prompted Gold Bugs to declare that banks will now rush out and buy gold thereby causing its price to rise dramatically.
Well first of all, we have to take into account the fact that Basel III and its impact on gold has been known for some time and frankly, Banks, if they were going to buy it will have already been doing so and so this immediate rush on 31st march is unlikely.

With regard to silver, which is not mentioned or covered in these regulations because as we have often said, it is not regarded as a primary monetary metal by banks it is however regarded as a secondary monetary metal by individual investors and some States in the US and certain smaller countries around the world. So any impact on the price of gold that Basel III may have – either positive or negative will in fact be reflected by the price of silver by association – as it is often termed ‘poor man’s gold’.

So our conclusion – yes positive directly for gold certainly longer term and for silver because of its association. However we caution our Inner Sanctum members to be aware of the possibility that Basel III could have a detrimental affect on holding gold, though on balance our assessment is that any bank selling, if it does happen, will be outweighed to some extent by private investor purchases which is why we neither see a dramatic rise nor a dramatic fall in the price of the precious metal.