Roundtable On Basel III, The Gold Price, And The Recent Volatility In The Gold And Silver Markets

Opinion seems almost unanimously in favor of a rising gold price. This new demand for gold will somehow be…

by Keith Weiner of Monetary-Metals

Monetary Metals CEO Keith Weiner was invited to participate in a roundtable discussion about the impact of Basel III regulations on the gold price. The conversation was hosted by Palisades Gold Radio. Keith was featured alongside Bob Coleman, Adrian Day and Vincent Lanci. While there continues to be a lot of confusion around the topic of Basel III regulations and gold, Keith elucidates that in the end, all this does is make it costlier for banks to participate in the gold trade. From the video, “the net result of this is that it increases the opportunity cost to the bank to own gold, which is going to make the bank more reluctant to be involved in the gold trade.” Click below to watch the video.

Basel III: Positive or Negative for the Price of Gold?

Most pundits are quick to provide an opinion on how Basel III will impact the price direction of gold. A quick glance through the gold blogosphere, that opinion seems almost unanimously in favor of a rising gold price. This new demand for gold will somehow be generated out of complying with Basel III.

Keith takes a different approach. As he mentions in the video, banks are not primarily in the business of speculating on asset prices. They’re in the business of financing productive enterprises. No, we do not have a free market in banking. Yes, we do have a corrupt banking system thanks to the central planning of money and credit. But the business of banking has not changed. It remains the act of raising capital to finance businesses. This is true despite the moral hazard, the not-money dollar, and many, many other things which distort and pervert the trade.

Now, if it becomes costlier to finance gold-using or gold producing businesses because of Basel III (which it will), it’s not immediately clear if that will cause a change in the price direction of gold. Rather, what we can be sure of is that this will increase the friction of buying and selling gold, regardless of price. It will make the market less liquid, and costlier to transact in. This was a central tenet in Keith’s dissertation, which he reiterated again in the discussion, “When the government intrudes into a market they add friction, which means fewer transactions, fewer people can benefit, and the marginal participant is forced out because they don’t have enough money to stay alive.”

Recent Volatility in Gold and Silver Prices

The conversation also covers gold’s recent volatility. Keith discusses the basis and cobasis action behind the recent price moves. This section of the video (starting at the 44:00 minute mark) would be great to pair with our recent supply and demand report, What the Heck Happened to Gold and Silver?!