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Bob Coleman: Basel III and London’s Relationship with Gold

Tom welcomes Bob Coleman from Idaho Armored Vaults to discuss his article and views on the recent Basel III regulations.

The regulations are difficult to decipher, and you have to study them carefully to get the complete picture. Bob explains the gradual structural changes that have been occurring since 2016 in the banking system. Banks have been exiting positions or altogether leaving the gold business due to these impending rule changes. He explains how the clearing mechanisms function for the banks and how it moves risk to exchanges like the CME.

Basel III attempts to clean up and de-risk bank balance sheets from unallocated metals programs. The regulations don’t prevent banks from entering riskier trades, but they require banks to back them with additional collateral reserves. This will increase the banks’ costs for conducting such trades. In most cases, the banks will not be the counterparty; instead, the exchanges will take on that risk.

These rule changes do not mean the end of derivative or futures markets, but we will likely see a lessening of bank involvement.

The Basel committee justifies its risk assessment for gold since gold tends to decline when good financial news occurs.

Basel III needs the regulatory bodies of each country to enforce their guidelines. As a result, expect some room for negotiation behind the scenes.

For the LBMA business will continue almost like normal, but the market may require additional transparency from these exchanges. However, for the average investor, this is a gradual long-term structural adjustment and is unlikely to have any sudden impact on the market.

Time Stamp References:
0:00 – Introduction
0:30 – Basel Breakdown
1:26 – Clearing vs. Deposits
6:14 – Exchange Oversight
8:37 – Derisking the Banks
13:00 – Activity Types
16:37 – RSF Factors
17:27 – Clearing Exempt
19:05 – Gold Classification
23:21 – More Like Guidelines
24:54 – Concluding Thoughts
27:02 – Lords of Finance
29:08 – Wrap Up

Talking Points From This Episode

  • Demystifying the Basel III regulations.
  • Why do the Basel regulators consider gold somewhat risky.
  • Regulations have to be adopted on a country by country regulatory level.
  • The net overall effect on the gold markets.

Guest Links:

Bob Coleman is a Registered Investment Advisor since 1992. In 2001, he founded Profits Plus Capital Management, LLC (RIA) and Dollars and Sense Growth Fund. Recognizing the necessity for physical metal storage, he founded Idaho Armored Vaults and Gold Silver Vault in 2008. They are a distinguished and respected leader in the precious metals industry specializing in storage, transportation, shipping logistics, and security.

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