BIS may consider making gold a Tier 1 asset for commercial banks with 100% weighting rather than Tier 3 asset with just 50% risk weighting as it does today.

Dennis Gartman noted today the following:


Despite the one day, onerous and expensive bearish shift... which has been replaced by the bullish reversal yesterday... we note the following comments made earlier this week by Mr. Ross Norman, the CEO of Sharps Pixley in London, entitled: The Next Big Thing in Gold: Possible Purchase of 1700 Tonnes:


Banking capital adequacy ratios, once the domain of banking specialists are set to become centre stage for the gold market as well as the wider economy. In response to the global banking crisis the rules are to be tightened in terms of the assets that banks must hold and this is potentially going to very much favour gold. The Basel Committee for Bank Supervision (or BCBS) as part of the BIS are arguably the highest authority in banking supervision and it is their role to define capital requirements through the forthcoming Basel III rules.


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. At the same time they are set to increase the amount of capital banks must set aside as well. A double win potentially.


Hitherto banks have been much dis- incentivised to hold gold while being encouraged to hold arguably riskier assets such as equity capital, currencies and debt instruments, none of which have fared too well in the crisis. 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. This should result in gold being re-priced to bring it on a par with all other high quality assets.

Currently banks have to have core Tier 1 capital ratio of 4% of which will rise to 6% from the beginning of next year. In addition to its store of value merits, central to the argument in favour of gold as a bank reserve is its countercyclical nature to most other assets in that it tends to be inversely correlated. Gold is ideal as it bears no credit risk. It involves no other counterparty and it is no one's liability. It is a reserve asset diversifier if you like.

This is a treble win for gold - it would be a major endorsement of its role in preserving wealth and as a store of value from the highest financial authority, it would lead to significant purchases of gold by major financial institutions and it would lead to a reappraisal of its value with respect to other Tier 1 capital such as quality sovereign debt. Under the new rules gold could become a very significantly larger proportion of a reserve pool which is about to grow very much larger.

This is very bullish news for gold... very bullish; but at the moment it matters really very little, although it shall in the not-too-distant future. At the moment, the only thing that matters is Europe and that means deflation, liquidation and cash. All else is of little interest until further notice. 

One of the finest opportunities to buy gold in the whole bull market - Embry - #GOLD ANALYSIS - Mineweb.com

One of the finest opportunities to buy gold in the whole bull market - Embry

For Sprott's John Embry the current level represents a strong buying opportunity because nothing in recent months has really been gold unfriendly.

Author: Geoff Candy
Posted:  Wednesday , 30 May 2012
GRONINGEN (Mineweb) - 

While gold has fallen significantly since hitting a peak in September last year, according to Sprott asset management's chief investment strategist, John Embry, nothing in this period has been "gold unfriendly".

Indeed, Embry believes that there has been a great deal of interference within the market with a lot of people trying to make the global economic picture look better than it actually is. And, as a result, at current levels, gold represents " one of the finest opportunities if not the finest in the entire bull market which is now in its 12th year."

Embry is nothing if not bullish about the price of gold. Speaking on Mineweb.com's Gold Weekly podcast, he said, "I think gold is going to $10,000 at some point and it's going to have nothing to do with the cost to dig it out of the ground, it's going to have everything to do with the fact that people just don't think their money is going to be worth anything."

To back up his claim he says one just needs to look at the state of global budget deficits.

"They're out of control and they [politicians] are not going to get them back in control because austerity just makes budget deficits bigger. So, I think you're waiting for that moment of recognition when people realise 'Oh my God this paper currency that I've just clung to for the last 40 years isn't going to buy me a loaf of bread in two years.'"

He adds, "Gold is the mortal enemy of the fiat paper currency system that we are operating and have been operating for 40 years. People are beginning to realise that this money is going to be turned into confetti and the authorities are scared to death that they are going to make the connection that gold is a good idea...People aren't making the correct connection that gold is what you should be holding in this environment - that will change."

For Embry, one of the major problems is that while, understandably, a great deal of attention is being currently focused on Europe, the situation in the US is equally as dire.

"I spent a lot of time studying the real US economic statistics and I don't think there's any recovery of any substance whatsoever ... I think the most shocking statistic that has come out in the last nine months is the fact that last year the US monetised 61% of its budget deficit. That's staggering. I can't even conceive of that, yet they did it and no one seems to care."

But, he does agree with other commentators, such as Ian McAvity, that if Europe were to implode or if the banking system got into a great deal of difficulty, it would go viral around the whole world almost immediately and no-one would be immune.

"The majority view, which is propounded by the US and a lot of the European countries, will prevail and austerity will go by the boards and essentially we will refinance the European banks and it will be wildly inflationary," he says.

Read the article online here: One of the finest opportunities to buy gold in the whole bull market - Embry - GOLD ANALYSIS - Mineweb.com | The world's premier mining and mining investment website Mineweb

Gold -#China now #1 in demand- Turkey re-emerging as key market- World #Gold Council

World Gold Council numbers for Q1 and Aril 2012

We note that Turkey has continued to buy more gold, purchasing another 29 Tonnes in April 2012 ( reported this morning by the IMF).

 

CONCLUSION: Q1 global demand reached 1097.6 tonnes (worth $59.7B), down from last year and from previous quarter, due to declining demand from jewellery and technology sectors in reaction to higher prices. Increased demand for ETFs was not enough to offset the decline. Central Banks remained significant net buyers of gold.

 

1- Q1 demand 1097.6 tonnes, -5% yoy, but up in value (+16%) due to higher prices. The average gold prices was 22% above Q1/11.

2- China demand reached record level to 255.2 tonnes (+10% yoy), becoming the largest consumer market during the quarter. China dominated the jewellery market with demand of 156.6 tonnes (+8%).

3- Central banks net purchases reached 80.8 tonnes but lower than Q1/11 level (which saw an exceptional level as a results of Mexico 93 tonnes purchase). Buyers include: Russia, Mexico, Kazakhstan, Philippines,…

4- Turkey is re-emerging as an important gold market, for both exports and demand (page 4 to 11).

5- Investment demand was the only segment to be up yoy, reaching 389.3 tonnes (+13% yoy). In dollar terms, demand was up 38% yoy but down 13% from previous quarter. ETFs demand reached 51.4 tonnes, vs 62.1 tonnes net outflows in Q1/11.

6- Jewellery demand was down 6% yoy to 519.8 tonnes, however in dollar terms, demand was up 14% to a record $28.3B. India jewellery demand was down 19% yoy, but was up in value (in Ruppee). Although small, Russia's demand was up 28% to 20.4 tonnes.

7- Technology/other industrial demand was down 7%.

8- Total Gold supply was up 5% yoy to 1070.3 tonnes. Q1 mine production was up 3% yoy to 673.8 tonnes. Net hedging activity was almost halved yoy, from already a very low level.