So says Jeffrey Snider of Alhambra Investment Partners here:
The new Basel Rules are positioning gold to enter the all-important ZERO RISK WEIGHTING category (targeted for adoption in 2015). Upon adoption, the new proposed rules would “elevate” gold in the regulatory hierarchy to the same status as cash and OECD sovereign debt in terms of capital ratios and regulatory leverage. Even the FDIC and OCC here in the United States have opened the requisite comment periods to adopt this proposal for US bank treatment. ...
If banks can now, under these proposed rules, keep the physical in their vaults and monetize it as collateral in derivative arrangements (IR swaps mostly), then they have a new outlet to obtain positive cash flows from gold without rendering additional physical selling – an almost exact reversal of the [previous] leasing/swap dynamic. This is also extremely useful if gold is accepted at the zero risk weighting, meaning that it would provide not only direct monetization for gold holders, it would do so with added regulatory and capital leverage (which is all that banks are after for any asset they own). Less selling pressure has been positive for price thirteen years , but it might also lead to banks reclaiming physical stocks from the market place if demand is high as a preferred collateral (which would be the case as uncertainty rises, particularly with regard to currency risk since gold is a good hedge against shifting currency prospects).
