Basel III, Gold, The Dollar, And The Great Reset
By Andrew Lane
Basel III as outlined in my previous two articles, could lead to a dramatic change in gold prices with a serious fall out in other market sectors. With June 28 2021 approaching where the new NSFR standards become implemented, we look at how the dollar will react, and whether the Basel III implementation is a front for a much bigger macro event.
The most important characteristic of Basel III, the NSFR implemented by the BIS commences on the June 28 2021. The LBMA – who have tried and successfully pushed back for years – have been granted an extension to this (again) however this will likely not matter one iota as banks and countries for that matter are already signing up to compliance. Therefore while an extension has been granted to the LBMA, with the rest of the 63 countries acquiescent, it is hardly an allowance of exemption of the rules.
When considering the fallout this could have, at this juncture there are some analysts that believe this could be the end of the dollar (many still believe the dollar to be on its knees by the end of 2021 regardless of Basel III) and some that still cling on to its stature as the world’s reserve currency and it won’t be allowed to fail. Gold is money, and there’s an argument to say it’s a currency as its value is traded against the US dollar. If you buy gold you are effectively shorting the dollar or betting its value will decrease. Whilst there is obviously more to it than that, fiat currency has and continues to lose purchasing power over the years. Gold has always been a hedge or security against dollar debasing and inflation.
So how will this affect the dollar? Well there is a very interesting situation bubbling away and this comes from China. It is widely known that since the Basel III rules were announced the Chinese have been stockpiling gold. They also mine it so it is impossible to know exactly how much they have but many estimates claim around 20,000 Tonnes – way more than is currently declared.
If this is true, it well and truly trumps the USA’s stockpile. China has been trialling their new digital currency and it would make sense that this could be a pretext for a digital or cryptocurrency Gold backed format that will launch to rival or replace the dollar. It is no secret China wants their currency as the world’s reserve and in 2016 the IMF added the Yuan to The Special Drawing Rights basket. (although it sits with others and nothing has happened since) Notwithstanding this, the digital Yuan is ground breaking and could be unleashed as a gold backed currency. At the very least, the Chinese still see gold holdings as sine qua non. Perhaps their gold amassed1§ figure will be disclosed when Basel III is implemented as they see an opportunity to power in before others do.
Putting to one side the rumoured stockpile, China is less and less reliant upon the dollar now, and they are very well placed should it fail. However they aren’t the only big economy that is loosening ties. In the last decade Russia has dumped the dollar and quadrupled its gold holdings with Putin stating Russia is now not reliant on the US currency whatsoever. It is even rumoured there is an alliance between China and Russia on destroying the dollar. If the dollar was to fail and if the last year is anything to go by, the remainder of 2021 could see an explosion in commodity prices. History has taught us that financial systems move in cycles, and the dollar could be in its final stages.
So returning to the upcoming event, back in 2018 the World Gold Council stated that central banks, in response to the Basel III rule changes added 651 Tonnes of Gold to their reserves in 2018. This was a 50-year record. Bear in mind at the time Basel iii rules were scheduled to commence the next year. Before the Basel iii NSFR rules, banks holding Gold was costly and not particularly worthwhile as a Tier 3 asset. Now a Tier 1 asset, Gold is attractive to hold because it can and will be used as security to back lending, and potentially offset debt. Currently and for years the Tier 1 assets have consisted of Treasury Bonds and cash. Fiat as mentioned above loses purchasing power over time and Treasury Bonds come with other problems. Gold however carries no counterparty risk.
We know how manipulated futures markets are when paper trading accounts for more than 95% of market moves in gold. So what happens when paper gold isn’t traded anymore? After Basel III derivatives will still exist in the form of ETFs and such like, but it will push a physical market. The naked shorts have to unwind soon, and the price action over the last week is starting show signs of this. It may well push the end of derivatives as it could prove too costly with the new haircut imposed. So if central banks are full to the rafters with physical gold, countries stockpiling and the world reserve currency plummeting, are we heading towards a Gold backed standard again? Is the great monetary reset hidden behind Basel III? Let’s consider this possibility further.
Debt levels are the highest they have ever been and there is no strategy to suggest that this is going to turn around any time soon. In the US the Fed is printing $120bn a month consisting of $80bn in Treasury debt and $40bn in mortgage backed securities. I don’t think anyone believes the narrative that we are out the other end of this Covid collapse. The world GDP over the last year during lockdowns has tumbled and the jobs lost aren’t reappearing overnight. Economists are predicting anything from 2 to a whopping 30 years before we see pre Covid levels of output again. Whilst figures will suggest at the end of Q3 we have rebounded, we are nowhere near where we would be if Covid didn’t occur. The world has gone backwards, it has cost a fortune to hold together and someone has to pick up the bill for it all. There’s 180,000 small businesses in the US alone that aren’t reopening and have collapsed. At the current levels of treasury yields the US can’t pay back the interest on their loans let alone the actual debt. (Can a country be classed as insolvent?) How can that continue? So has there been a bigger plan brewing in the background for years here that we aren’t being told about? Is Basel iii going to be the answer?
The G20 leaders have been pushing this “Great Reset” agenda for some time. Biden even quoted the authors of the Great Reset with his “Build Back Better” motto. Kristalina Georgieva, MD of the IMF in Washington, even called for a Bretton Woods moment in Q4 of 2020. It would make sense wouldn’t it. Small banks that can’t afford to stack Gold close down leaving the cartel of the big boys to set a minimum Gold price. The higher the price of gold, the less debt the banks have. It’s like monetary magic policy. It’s so brazen you can see it happening.
By the time Basel IV rules kick in (January 2023) gold could have had its second revaluation event. So can you imagine a minimum price of gold, not just once, but twice? Some gold analysts have been touting this scenario for a while now. Why wouldn’t the price of Gold be used to offset debt the banks have? What other options are there? The debt clock in the US currently stands at $28 trillion, and this is not inclusive of the recently signed off Biden $1.9 trillion stimulus. This debt increases by $1 million dollars every 23 seconds. Money printing creates more available money and therefore leads to a weaker dollar. Basel III will lead to less Gold being available to trade creating a very tight supply/demand ratio.
According to almost all reports on net trading figures, less than 1% of traders across the world hold gold in their portfolios. What could the price of gold get to, when paper disappears and this figure jumps to even 3% of physical, let alone higher? It feels like we are on the precipice of huge change here. The banking system is broken and needs a huge overhaul, and this could be it. This Keynesian approach just isn’t working.
Crazy numbers have been thrown around on what gold prices could rise to, and I’ll leave you to form your own opinion on what big industry analysts are predicting. However if we were to remove all the “could” out of the noise around Basel III, one key fact is clear: The NSFR will considerably reduce, if not completely eliminate naked shorting of paper gold by the big banks. They have to have a provable 1:1 ratio of physical gold which will be audited to trade or use it. Paper gold and derivatives will become incredibly expensive and will be traded far, far less.
This alone will lead to price discovery, a fair price for Gold. What that price is we will find out on the June 28 2021 and beyond. If the dollar does collapse then we could be talking numbers beyond our wildest dreams. No wonder many big name precious metal analysts are calling this the most significant event of their careers.
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