Gold – Heads Toward Tier I Asset Status

World-wide monetary systems have been built upon the model of the United States dollar. While currently the dollar is still the world’s reserve currency its status as such, could be held into question over the Basel III talks with America. It is widely expected that the US will lead the way in further developments towards gold’s rise to Tier I status.

Within developed countries of the world, the unified consensus is that gold has yet to show any real signs of true-value towards the 41 year old paper currency fiat money system. The system now is starting to break down. In the past 5 years serious strain and stress in the current dollar fiat system has been mounting. Intensifying signs show problematic developments, now and into the future. These developments could be a sign where the current fiat based system is too flawed. This makes a good argument where gold held in reserves would be necessary to increase liquidity, thus granting easier access to loans of nations in need.

Currently gold is classified as a Tier II asset. Gold needs to become part of global monetary system. Currently it’s gaining popularity for a change in tier status from Tier II to Tier I. This is currently being proposed to the Basel III Committee for monetary reform. Should this change occur, it would indicate that 100 percent of gold’s true value could be accredited to the balance sheets of banks. Required assets on bank balance sheets currently are at 50 percent.

Big question here is why would this be so important towards gold investors? Should commercial banks be allowed to hold gold in this manner, it would operate as a check, by controlling swings in the value of the dollar to help to stabilize it. Regardless of what good or bad that might come out of the Basel III talks, the yellow metal will still be necessary to support a fiat currency system, which has grown out of control over the past 5 years. Its place inside the monetary system is now inevitable!

There is a realistic function to this, as bank ratios come under pressure due to government bonds losing value. An example; the gold will not have to be sold off because it would now be a Tier I asset. The gold held by the banks would also act as an asset that instills confidence. Here is a prime example: When the credit crisis hit mid 2007 gold was one of the easiest assets to liquidate and receive 100 percent its value, which would show up on the bank’s balance sheets. This promptly filled a void left in the bank’s balance sheet due to the declining value of any linked assets and sovereign bonds.

Now if the yellow metal had already been defined as a Tier I asset back in 2007, the gold would not have been sold. At the same time, gold’s market price at the time would not have declined in value from $1,200 dollars to $1,000 dollars an ounce. Afterward, the yellow metal did recuperate after massive sell-offs subsided, later reaching a new high of $1920.00 per ounce. Imagine today, what would gold’s market price be if back in 2007 it was already classified as a Tier I asset? Furthermore, how much of this precious metal would both central and commercial banks be holding today? It’s a no brainer to state; the market price today would have been much higher than it currently is now.

The Basel Committee has recommended the monetary metal’s status be re-classified to a Tier I asset on January 01, 2013 (a proposed date still subject to change). When this event finally takes place, it will be a defining moment, a milestone that will take a major step towards the re-monetization of gold into the monetary system, from where it was removed back in 1971. Changes such as this to the banking system, allows for realistic and convenient daily use of this precious metal in the system. Mobilization would then not be implemented, except under extreme or dire emergencies, but used rather to evade any pending emergencies in the first place.

Over the past 5 years the global monetary system and the direction it has been heading shows with no doubt, that gold’s place as a monetary asset within the banking system is needed. Because of its tremendous need, it has been readily gaining importance. As the fiat currency system suffers further from more debt related troubles and alike, it is apparent that the shiny yellow metal would become a necessary and strategic asset for the entire banking system. Redefining this metal asset to a Tier I status would advance the yellow metals interest and popularity severely, once it’s been reclassified.

At some point the possibility of the banking system intensifying measures to remove precious metals out of the hands of private investors and institutions is real. It is important you own only physical gold and physical silver within your holdings. It is utmost important your metals are held outside the worlds banking system all together. Stay out of assets such as precious metals ETF’s where they are controlled by the major banks such as Barclay’s and JP Morgan already. Assets such as these would be the quickest and easiest to steal from you because in the end, they also control your brokerage accounts. Stay Wise, Be Prepared!

Tom Genot –