Reserves sufficient to cover 85% of unallocated gold
Investment funds, futures contracts, ETFs or other securities that have gold as an underlying, but do not allocate an amount of physical gold bullion or coins to investors, have allowed the same speculative model based on FIAT money. The new regulation aims to end or limit this business model based on the issuance of securities backed by a quantity of gold that does not actually exist, as it can generate financial bubbles that trigger many economic crises and subsequent bank collapses.
Thus, the regulation reclassifies physical, allocated gold as a Tier 1 asset (the safest tier), comparable to cash, while it continues to categorise paper gold, or unallocated gold, as Tier 3 (the riskiest tier). In addition, it obliges financial institutions to hold capital buffers of 85%, previously 0%, to secure precious metals financing and clearing transactions.
The possible consequences of the reclassification of physical gold into a safer asset may trigger the allocated gold market, while unallocated gold becomes a less desirable form of investment. Still, the tendency for gold price manipulation should diminish, at least in the futures markets, because state manipulation is another matter.
Time will tell how effective this new regulation will be in preventing banks and financial institutions from playing Russian roulette with money that is not theirs. A speculative game where taxpayers always end up paying the price. In any case, the value of physical gold as a safe haven asset par excellence is confirmed.
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