From Frank Holmes of U.S. Global Investors:
Central banks have been on a gold buying spree. In "The Rising Financial Gold Market," I highlighted how countries such as Mexico, Russia, and Thailand were adding to their gold reserves. And in 2010, central banks became a net buyer of gold for the first time in 21 years, according to the World Gold Council.
Central bank gold buying could soon be matched with other global banks if gold's quality as an asset gets upgraded to Tier 1 status by the Basel Committee on Banking Supervision (BCBS).
The BCBS is an international banking supervisory committee that provides a forum for determining global standards to ensure that banks all around the world have adequate capital. The group is comprised of members from all over the world, including Brazil, Canada, Germany, Hong Kong, Mexico, South Africa, Turkey, the U.K., and the U.S.
After the global economic crisis, its top priority was to increase banks' ability to absorb market shocks. One way to do this was to raise the percentage of common equity – considered the least risky of banks' assets – that banks were required to hold from two percent to seven percent.
The BCBS has three tiers to grade the quality of capital held by financial institutions...
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