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Gold prices are set to a receive a major boost from their adoption by banks are a core asset should the world’s leading banking regulatory authority opt to raise their asset status.
According to independent stock analyst Rick Millsof Ahead of the Herd the Basel Committee for Bank Supervision (BCBS), which is responsible for forging global capital requirements, is undertaking a study into the categorization of gold as a bank capital Tier 1 asset.
Tier 1 capital serve as a key indicator of a bank’s fiscal health for regulatory purposes, and thus plays a crucial role in determining how much banks are permitted to lend to borrowers.
This core capital from the perspective of regulatory assessment is comprised in the main of common stock and retained earnings, and subject to strict conditions to ensure that lenders remain in rude health.
Gold was traditionally categorized as a Tier 3 asset, and their market value slashed in half when determining a bank’s permitted lending volume.
The inclusion of gold as a Tier 1 Capital asset by BCBS would enable banks to lend more with less equity capital, and gold would become in Mills’ own words “the new backstop for debt, currencies and bank equity capital.”
This would serve as a strong and immediate spur for banks around the world to raise their holdings of gold bullion, further adding to the upward momentum of gold prices provided by the mass printing of fiat currency by monetary authorities and rampant stimulus spending by governments.
The BCBS is an international committee comprised of the banking supervisory authorities of the world’s major economies, and currently includes Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States
