News: Regulators to Classify Gold as Zero-Risk AssetSubmitted by PWA on Tue, 06/26/2012 - 14:08
In what might be the most underreported financial story of the year, US banking regulators recently circulated a memorandum for comment, including proposed adjustments to current regulatory capital risk-weightings for various assets. For the first time, unencumbered gold bullion is to be classified as zero risk, in line with dollar cash, US Treasuries and other explicitly government-guaranteed assets. If implemented, this will be an important step in the re-monetisation of gold and, other factors equal, should be strongly supportive of the gold price, both outright and relative to that for government bonds, the primary beneficiaries of the most recent flight to safety. Stay tuned.
Did Anyone Notice?
In an Amphora Report last month, The Canary in the Gold Mine, I made the case that a key reason why gold has not been acting like a safe-haven asset in recent months is because banks are so capital impaired that they are scrambling to reduce their holdings of risky assets in favour of so-called ‘zero-risk-weighted’ assets, against which they needn’t set aside any regulatory capital. As it stands, gold has a 50% risk-weighting. But some government bonds, including US Treasuries, German Bunds and British gilts, are zero-risk-weighted.
However, in the report, I speculated that perhaps that would change in future, and that: