TheLonger Term Implications of Basel III (January 2013) - Gold's Triumphant Return?

I think InfleXion has alluded to this; I haven't seen it discussed here before. Obviously the world didn't end yesterday... but SOMETHING is changing very soon. :smile

With the implementation of Basel III, Gold becomes a Tier I banking asset for the first time in 42 years. In the new global financial framework (effective in about two weeks) Gold has both a currency and commodity component. The naysayer Paper-Bug, braying loudly all these years NOT MONEY! NOT MONEY! have been soundly defeated. Gold is no longer theoretically/debatably "an alternative monetary asset" - Gold now is fully recognized as a reserve asset, like Greenbacks.

http://seekingalpha.com/article/1016161-basel-iii-and-gold

The argument this very significant change will drive up demand and push POG much higher (as Paper debases ever farther down, down) is worth examination:
http://seekingalpha.com/article/1060301-the-price-of-gold-is-headed-much-higher-here-s-why

Gold isn't "money" - it's POWERCASH.
Got Gold?

 

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from what i have read there is going to be a time delay before it is implemented. some places a few months and some a year or more but it's still a big help for gold.

 

Now that the Mayan calendar hooplah is behind us, anybody who was on the fence about planning for their future is now going to be a potential metal buyer. Couple that with the mental shift in gold being as good as cash, money printing being at an all time high with interest rates at all time lows, and there's no reason to think this bull won't be going strong for years to come.

 

Was there ever a significant number of people that believed in the so-called "Mayan apocalypse"? I've heard many people claim they did, but always in a joking or sarcastic way. I'm sure there were more than zero people that believed in this but it never seemed like there was enough to be statistically significant. (Probably hard to tell now, as I doubt anyone will admit to it now lol...)

The fact that nothing happened suddenly made the movie "2012" even more hilarious than it already was.

 

What my OP questions is the possible IMPACT of the reclassification. Here's an article confronting some of those issues (bullish opinion):
http://seekingalpha.com/article/108...-for-both-gold-and-faux-aaa-aa-sovereign-debt

But read a different way, a national bank might choose NOT to consider (accept?) Gold "as cash" - is that correct?


Adrian Ash puts a damper on this bullish take, however. His article is sensible, too:
http://goldnews.bullionvault.com/basel-gold-121920126

Also note Jim Roger's statement 12/18/2012 that "{Gold has} been correcting for 15-16 months now, which is normal in my view, and it's possible that correction is going to continue for a while longer."
http://www.cnbc.com/id/100326475/Even_Gold_Bull_Jim_Rogers_Is_Turning_Cautious
http://goldnews.bullionvault.com/basel-gold-121920126

 

As others have noted : lacking here is proof or statements that private banks are accumulating gold as Tier 1 Capital. It does seem rather likely to happen in the future, however.

"The new Basel III banking rules will increase the amount of reserves banks are required to hold. Banks will now be required to hold 6% reserves of Tier I capital, up from 4%. Finding new high quality reserves in today's economy is difficult, which is likely to lead banks to use gold."
http://www.republiccapitalgroup.com/basel.aspx

Via Russ Winter, Eric Sprott's comment sounds most informed, where this leads:
"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?"

 

When the day comes when everything in the grocery store, car dealerships, and homes for sale are listed as X grams of gold, I will say "gold is money".

Until then, its a simple commodity. Yes, its a nice commodity since its valuable relative to its size, and does not rot over time, but its still a commodity.

I believe world banks may be somewhat more interested in it since its return has been higher, and bonds have been horrible. But, if this is the main attraction, then you are saying PM will tank severely when bond yields go up.

Basel III is more important in the increased reserve ratio being pushed, up 50%.

 

On that day I will say "gold is currency" Until then, it is an element that also meets the definition of both money and commodities.

 

I have my swiss listed Goldfields bought. Gold and swiss francs in one asset!

 

I'd agree with the two posters above: where Gold can exist in a currency account, it's already "money."

I don't need to use it at the quikiemart or whatever. I cannot use Euros there, either!

 

How does it meet the definition of money? Do banks accept your deposit of X ounces of gold on account? Does anyone buy or sell using gold as the medium of exchange? I do not see one instance on this earth where today grams of gold is "money" using most traditional definitions.

Is it an asset? Of course, but so is corn, cheese, pork bellies, copper, iron, and cotton. Gold is great since it is small, valuable, and does not decay, but how does that make it money?

 

Central banks do, and if I were a betting man I would bet that the smaller banks will follow suit in 2013 since gold will reach 100% valuation on their books.

Again, this is currency. Currency and money do not have identical definitions. Gold has face value, and it fulfills all the requirements of a unit of account. Today's currency does not even meet all those requirements.

Being an asset is irrelevant aside from how it relates to durability, portability, fungibility, and divisibility. Only metals meet these 4 requirements of a unit of account.

 

So what is the face value of 18 grams of gold?

 

Whatever the goverment says it is I didn't say gold was the ideal currency, far from it, but it is money. I like BitCoin as a better currency than FRN's, and I like FRN's as a better currency than gold.

 

I like the concept of BitCoin, but WHOA.
I believe it'll be a huge loser for anyone trading in FRNs (or real stuff) for that.

It's the currency equivalent of Ithkuil, lol

 

Not my intention to derail here, but I say this because BitCoin has a predictable algorithm with built in deflation, no need or ability for central management, is divisible out to many decimal places, and provides instantaneous transactions on a global scale. Yes it is fully dependent upon the Internet and electricity unlike FRN's, but I consider it to be the ultimate currency. I would never invest in it though.

 

Obviously gold can be money, because it was. Just as obvious, gold is no longer money. It isn't a medium of exchange or unit of account. Since the trend and intent is to move toward electronic money, gold will perhaps become less important to central banks than it is now. Time will tell.

 

Yes, gold, silver and copper were all "money" before the advent of coinage. After coins were invented, (one of the greatest boons to commerce ever), gold, silver and copper were the medium on which "money" was struck, but in itself PM stopped being "money". Now that no circulating coinage or notes are struck or backed by PM even this tenuous link between PM and "money" is no longer valid.

I know its trying to argue with a brick wall with "hard money" people, since they wish so badly for it to be true, but all PM today is simply a commodity, an asset. I have no problem with the bankers giving full credit for gold reserves, heck I think they should for silver, platinum, and other "shelf stable" assets as well on the bank's books. However, giving banks credit for an asst they may own cannot magically make that asset "money" given the facts Cloud outlined above. It is NOT a medium of exchange any more than any other barter asset is, and its not a unit of account, at least in any western nation. It hasn't been a unit of account for, what, 2500 years now? Drachms, sestertii, and ducats were the units of account, NOT gold or silver.

Btw, no disrespect meant to Inflexion or Juan, I simply completely disagree with the thought that any PM is "money", and wished to outline my disagreement for others to read. If they disagree, that is fine.

 

I don't know what you insist "money" is, medoraman. Is "money" the debit cards with which poor and affluent alike buy goods? Is "money" the credit system - supported by the Treasury/Fed - that allows select worthies to "buy" a house?

Fed Chairman Alan Greenspan admitted in 2000: "We have a problem trying to define exactly what MONEY is. ... the current definition of Money is not sufficient to give us a good means for controlling the Money supply..." But Alan Greenspan had no problem admitting Gold was money in 1966:
http://constitution.org/mon/greenspan_gold.htm

After he retired as Fed Chair, Grenspan went to work for John Paulson in January 2008:
http://www.telegraph.co.uk/finance/...82593/Greenspan-joins-hedge-fund-Paulson.html

So when did Paulson become a Gold Bug and accumulate such huge stakes in Gold? Why imagine that Greenspan was clueless or not party to that (since he joined the firm!)
http://www.dailymarkets.com/economy/2009/12/07/the-extent-of-john-paulsons-gold-holdings/

And what does Greenspan think/hold, privately? I don't think we can say - but I'll guess he has some Gold.

In 2010, World Bank President Robert Zoellick called Gold an "alternative monetary asset" so I think we're just splitting hairs here. If it's good enough for CBs (holding THOUSANDS of metric tonnes) and the supperrich alike... why shouldn't that be good enough reason for you?

The changes in Basel III are supporting trend: Gold is Powercash.

 

The FDIC has apparently briefed the banks and made the risk-weighting change:
http://www.fdic.gov/news/news/financial/2012/fil12027.pdf