Gold News

The Remonetization Of Gold?

Gold's value as a high quality liquid asset is finally being recognized...

THE LATEST agreement by the European Parliament's Committee on Economic and Monetary Affairs to allow central counterparties to accept gold as collateral is further recognition of gold's growing relevance as a high quality liquid asset, writes Lawrence Williams at MineWeb.

In a press release this week, the World Gold Council's Natalie Dempster, was quoted as saying:

It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral.

We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. 

The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission.

The acceptance of gold by the previously reluctant financial community has been growing apace. As the WGC points out, market demand for gold to be used as a high quality liquid asset and as collateral has been building for some time. 

In late 2010, ICE Clear Europe, a leading European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. In February 2011, JP Morgan became the first bank to accept gold bullion as collateral via its tri-party collateral management arm.

Exchanges across the world, such as Chicago Mercantile Exchange, are now accepting gold as collateral for certain trades and London-based clearing house LCH Clearnet has said that it also plans to start accepting gold as collateral later this year, subject to regulatory approval.

Says Natalie Dempster:

As regulators, from G20 countries, demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the credit worthiness of other forms of collateral, we expect to see increasing demand by clearing houses, exchanges and investment banks to use gold as collateral. 

While one would still likely be unable to go into your local supermarket and pay for goods in gold, the metal is becoming more and more easily tradable, particularly if bought and held via some of the gold investment specialists out there like James Turk's Gold Money or the London based BullionVault. 

There are many retail outlets too in Western nations which will buy your gold over the counter, although one has to be cautious about the pricing being offered here from some less scrupulous dealers, while in the Middle East and Asia over the counter trade in gold is even simpler and probably more transparent in terms of ease of transaction and price offered.

But the latest moves – including the well-publicized Bank for International Settlements (BIS) (the central banks' bank) gold swap for US Dollars last year – suggest that even the central banks are now officially accepting the effective monetization of gold. 

Indeed, to an extent, those central banks which have held on to their gold reserves, and those now buying, have been tacitly accepting this principle for some time.

Looking to add to your own Gold Bullion reserves?...

Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

See all MineWeb articles.

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