Gold to Be Reclassified in the U.S. as a Tier 1 Asset

According to Michael Lombardi, lead contributor to Profit Confidential, the Bank of International Settlements (BIS) is proposing to reclassify gold bullion as the safest and the highest quality asset for central banks and all other banks around the world: Tier 1 capital.

In the article “Gold to Be Reclassified in the U.S.,” Lombardi says that regardless of how the central banks wish to classify gold bullion, it is the market that will eventually decide its value.

The Basel Committee for Bank Supervision (BCBS) is the maker of global capital requirements and whose Basel III rules form the basis for global bank regulation.

“Gold has historically been classified as a Tier 3 asset. When determining how much money a bank can loan, the bank’s gold holdings have traditionally been discounted 50% of the current market value. With value cut in half, banks have little incentive to hold gold as an asset.” Frank Holmes, USFunds.com

The BCBS is a committee of banking supervisory authorities established by the central bank governors of the Group of Ten countries in 1974. The Committee’s members currently come from 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.

If gold is made a Tier 1 Capital asset banks could operate with far less equity capital than is normally required. Gold would be the new backstop for debt, currencies and bank equity capital.

“Anyone who understands gold’s historic role will grasp the importance of the argument behind extra bank leverage. Direct ownership of bullion by a bank is superior to holding the fiat money issued by a central bank. It should increase confidence in any bank and the system as a whole. Given relative values, bank purchases of bullion will drive the value of gold as Tier 1 capital up relative to other qualifying assets, increasing its desirability for regulatory purposes further without a gold-owning bank doing anything.” Alasdair Macleod, ResourceInvestor.com

If the Basel Committee agrees to banks using gold as Tier 1 Capital it would create substantial demand for physical bullion and be an important step toward gold’s re-monetization.

Consider:

• Gold, if moved from a Tier 3 to Tier 1 asset would be competing as a safe haven investment against un-backed bonds yielding less than zero in inflation adjusted terms and issued by over indebted governments.
• Gold is set to become the new “good collateral.”
• Gold is unique, it is the only non-Tier 1 asset to be universally regarded by investors the world over as a flight to safety asset.

See the interview with ADVFN chief executive Clem Chambers who tells CNBC when gold is going to $2000 » Go Long Gold!

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