Gold attempts to stabilize at the $1775 mark this morning
Hecht: Basel 3 ‘could cause demand for physical gold bars and coins to rise substantially’

(USAGOLD – 7/1/2021) – Gold is attempting to stabilize around the $1775 mark after a month-long sell-off that saw it shed about 7.5% from its price – its worst monthly loss since late 2016. Most of the sell-off, if one were to reduce it to a primary cause, is the result of Wall Street market players going along with the Fed on its assurances that the pick-up in inflation is transitory – a premise increasingly being challenged by the on-the-ground evidence. The yellow metal is up $8 on the day at $1780. Silver is up 15¢ at $26.35. Basel 3, now in effect for continental European banks and the United States as of Monday, continues to be a matter of interest among precious metals enthusiasts. Andrew Hecht, who has enough experience trading metals on Wall Street to warrant close attention, had this to say about the new rules in his regular Seeking Alpha column:

“New banking rules, which are part of the sweeping international Basel III accord that took effect on June 28, define allocated gold, intangible form, as a zero-risk asset. However, unallocated gold or ‘paper gold’ will have a higher risk weighting. The move could cause demand for physical gold bars and coins to rise substantially as the metal is reclassified from a tier-three asset, the riskiest class, to a tier-one zero-risk weight. Gold will become the same as cash and currencies as an asset class. Paper gold in the form of unallocated bullion, forwards, and other derivatives will not do the trick. We could see the demand for physical gold rise as banks and financial institutions add to reserves. The move could make the cost of derivatives much higher. Silver is not considered anything near a zero-risk asset, nor should it be given the market’s penchant for volatility. However, increased demand for physical gold would likely have a bullish impact on the silver market.”

Holiday note:  In observation of the Fourth of July holiday, we will be taking a long weekend. The next Daily Market Report will be posted on July 6th.

Chart of the Day

The inflation-adjusted price of silver
(Based on the Bureau of Labor Consumer Price Index, 1970 to present)

line chart showing the inflation adjusted price of silver 1970 to preset

Chart courtesy of Macrotrends.net 

Chart note:  “If we account for inflation,” writes analyst Peter Krauth in a piece posted recently at the FXEmpire website, “and that’s massively understated ‘official inflation,’ then silver prices peaked at $120 in 1980 and around $57 in 2011. Today’s price near $24 is still well below those levels, suggesting a lot of upside remains ahead. In fact, at $24 today versus the inflation-adjusted $120 in 1980, silver is currently about 80% below that peak.” He believes “$100 silver is well within reach.”

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