Impact of Basel III on Gold
What is Basel III
Basel III is a global regulatory framework for the banking sector, introduced in 2010 by the Bank for International Settlements (BIS). Its primary goal is to enhance bank stability and liquidity, reducing the risk of future financial crises. Basel III strengthens banks’ capital bases, requiring higher capital levels and prioritizing high-quality capital (Tier 1) to better withstand economic shocks.
Key Changes from Basel II to Basel III
Impact of Basel III on Gold
Basel III introduced a significant change by classifying gold as a Tier 1 asset with a 0% risk weighting, aligning its safety with that of government bonds and cash. This classification makes gold more attractive for banks, enabling them to hold it as high-quality capital. As a result, banks are increasingly investing in physical gold, and investors recognize its stability as a secure asset.
These changes have positively impacted the gold market, leading to a substantial rise in gold prices over the past years. Basel III allows central banks to count gold reserves fully as core capital with a 1:1 valuation, enhancing gold's appeal for central banks, including its accounting benefits.
