Safe haven
assets should have low credit and market risks,
high market liquidity, limited risk of inflation, low foreign exchange risk and low
idiosyncratic risk (Erste
Gold Report 2012, p87). Gold fulfills
these criteria and with systemic insolvency
risks affecting countries, banks and companies likely to lead to further
ratings downgrades, a thorough review of asset portfolios should upgrade gold’s
status as a safe haven. Gold is already used as collateral by LCH.Clearnet,
Intercontinental Exchange, JP Morgan, and the CME Group, and Eurex (Erste
Gold Report 2012, p87). Moreover, on June 18th of this year, the Federal Reserve and
FDIC circulated a letter to banks that added gold to the list of Tier 1 assets
held by banks in proposals to harmonize US regulatory capital rules with Basel
III (Washington
Post June 2012). The global standard on bank capital adequacy, stress
testing and market liquidity risk gives countries the discretion to add gold bullion to the list of
"zero-percent risk weighted items," and stipulates that banks must raise such
Tier 1 holdings from 4% of assets to 6%. If the US and other national
authorities were to exercise this discretion, the implementation of Basel III
over a transitional period
from 1 January 2013 up to and including 2019, would not only create sustained demand
for gold from banks, but will likely expand gold bullion ownership by
institutional investors from current very low levels (Deloitte.com,
August 2012).
