It’s happening this month: a day that could mark a turning point in the history of precious metals. Yet, you won’t hear anything about this event in the mainstream financial media – but that gives you a major advantage.
In order to explain this, let’s rewind the clock a couple of years. On April 1, 2019, gold was reclassified as a Tier 1 (zero-risk) asset by the Bank of International Settlements, an international financial institution owned by central banks.
This was a condition of a set of rules known as Basel III. Prior to that, gold was classified as a Tier 3 asset, meaning that gold could only be carried on banks’ balance sheets at 50% of the market value for reserve purposes.
This upgrade from Tier 3 to Tier 1 wasn’t meant to be implemented immediately, though. The big change will take place soon – in a few weeks, actually.
On June 28 of this year, under the Basel III rules, Europe will no longer classify unallocated (paper/futures) gold as a Tier 1 asset. It has to be a provable 1-to-1 ratio, which should lead to a physical gold market.
This, in turn, will allow every central bank to revalue its physical reserves higher. A provable 1-to-1 ratio of fully allocated gold reserves, with no counterparty risk, means that every central bank will be able to revalue its physical reserves higher, from a current 50% discount into a fully cash-exchangeable asset.
Just to be clear, while the full implementation of the Basel III rules has been pushed back until January 1, 2022, the biggest players in the gold market (the U.S., Switzerland, E.U. nations) have targeted June 28, 2021 as the date by which they plan to be in compliance.
An argument could be made that this represents the most important development for gold since the original Bretton Woods agreement of 1944, when the world responded to the devastation caused by World War II by making the American dollar – backed directly by gold – the world’s reserve currency.
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Allowing physical gold in bullion form to be counted at 100% value for reserve purposes means that gold in unallocated paper contracts will no longer be considered an equal asset.
It will be devastating for the heavily manipulated paper gold markets – and terrific for physical bullion investors, as well as the companies that mine for gold.
This shift implies that significant changes in precious metals prices are imminent. In fact, renowned commodities trader Andrew Maguire is calling for a $500 boost for gold and a $10-to-$12 boost for silver over the next 20 weeks.
Surely, it’s no coincidence that after five years of range-bound price action, gold happened to break out when it was reclassified as a Tier 1 asset.
And this month, the world’s biggest central banks will implement the set of rules that declared gold a Tier 1 asset in the first place.
It’s even been said that the enforcement of the Basel III rules will be the beginning of the end for the London Bullion Market Association (LBMA), which is the world’s largest trading platform for precious metals.
$20 billion worth of gold is traded every day on the LBMA – that’s more than $5 trillion annually. However, it’s not physical bullion; virtually all of this “gold” trading is in the form of unallocated paper/futures contracts.
If paper gold contract trading is dis-incentivized, that’s bad news for the LBMA. The disruption to the futures markets from Basel III will be a major shock to the system, as banks will be forced to wind down their positions in unallocated precious metals.
And if the expansion of the paper markets has suppressed the gold price over the last fifty years, then a contraction of those markets should unleash a massive bull cycle for real, tangible gold.
This, along with escalating fiat-money inflation, will be a one-two punch of catalysts that’s poised to send the physical gold price soaring. I hope you’ve got your gold and mining shares ready – if not, I’d consider June 28 to be the deadline before the rocket ride starts.
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