Market Nuggets: Sharps Pixley: Potential Changes To Banking Rules Could Provide Boost For Gold

Tuesday May 29, 2012 10:52 AM

Sharps Pixley says possible changes to banking rules are “potentially the biggest thing since the birth of the gold ETF and the liberalization of the Chinese gold market in 2003.” The Basel Committee for Bank Supervision, as part of the Bank for International Settlements, is to define capital requirements for banks through forthcoming Basel III rules, Sharps Pixley says. “In short, they are meeting to consider making gold a Tier 1 asset for commercial banks with 100% weighting rather than a Tier 3 asset with just a 50% risk weighting as it does today,” says Sharps Pixley CEO Ross Norman. “At the same time they are set to increase the amount of capital banks must set aside as well. A double win potentially.” Previously, banks have tended to hold riskier assets such as equity capital, currencies and debt instruments, Norman says. “With this potential change in capital adequacy requirements, bank purchases of gold would drive up its value relative to other high-quality qualifying assets, increasing its desirability for regulatory purposes further,” he says. “This should result in gold being re-priced to bring it on a par with all other high-quality assets.”

By Allen Sykora of Kitco News; asykora@kitco.com