Basel III’s Effect On Gold And Silver

However, the regulator said that it would “not classify gold as a high-quality liquid asset”. This means that the banks still face higher costs for leasing and lending.

Full disclosure: Monetary Metals provides gold and silver leases and loans and would stand to benefit from regulation that discourages banks from remaining in this business.

Basel III making gold more costly?

We have a stunning graph to share. This is a five-year chart of the bid-ask spread in both gold and silver. This spread is how much you would lose if you bought and immediately sold without the market moving either up or down.

5 year spreads gold and silver

The bid-ask spread for gold was stable for nearly three years, at around $0.15 per ounce. This is extraordinary, by the way, as a percentage of the price of the asset.

Then, in March 2019, it goes to $0.30. Double. It remained at this elevated level until Covid hit.

Then, it launches like a skyrocket. We documented that it hit $25, on March 25, 2020. It began to come down, as the precious metals logistics industry started to figure out how to operate under lockdown measures. By June, it was down to a mere 80 cents. Then, in October, 50 cents. Which is more than triple what it had been for years, by the way.

It has held steady at this quite-elevated level, but compared to the recent past, half a buck is downright tight.

Is Basel III’s higher “Net Stable Funding Ratio” to blame? We don’t know for sure. But it is logical that the new cost-increasing regulations would have an effect. Plus perhaps some lingering lockdown whiplash.

Gold and Silver Supply and Demand Fundamentals

Here is the only chart of the true fundamentals of gold supply and demand.

gold basis continuous

You can see the (relatively) big decrease in abundance (i.e. basis, the blue line) and increase in scarcity (cobasis) when the price of the dollar moves up sharply from around 16.5 milligrams gold to 17.5mg (inverse to the drop in the price of gold, measured in dollars as most people think of it).

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Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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