Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

Last week, gold found support at $1,750 per ounce before moving back up. Gold closed the week at $1,783.30 per ounce.

After the global financial crisis of 2007–2009, European banks entered into the Basel III agreement. Investopedia defines Basel III as a set of reforms “designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand.” The ramifications of this agreement could have a profound impact on the price of gold as it goes into full effect on January 1, 2022.

Kitco reports, “One of the biggest changes for gold is that the precious metal is being reclassified from a Tier 3 asset, which is the riskiest asset class, to a Tier 1 asset, which includes currencies and cash. The change could make it more expensive to buy and sell unallocated gold. …

“‘Basel III requires banks or dealers to collateralize 85% of the value of their unallocated gold with a Tier 1 asset, which is cash,’ [Goldex CEO Sylvia] Carrasco said. …

“Allocated gold is finite, and the unallocated gold is infinite, Carrasco added. ‘If people turn to allocated gold, liquidity will be squeezed, and prices should go up.’ …

“‘The biggest impact might be visible at the end of the year before January 1, if Basel III kicks in in the UK. In the last quarter of the year, we’ll see an impact. At the very minimum, I can see gold go over $2,100 by the end of the year,’ [Carrasco] pointed out. ‘The highest amount of unallocated gold is traded in London. On June 28, only a third of European banks will have to abide by the new rules. The rest will only be affected from January 1, 2022, if this goes through in the UK.’”

Rick Andrews is president of Avant Capital Management.

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