“But the interesting point is that gold must be physical and held in the institution’s own vaults. It should not be in paper form or owned and leased by someone else. Most gold investments are leased or borrowed or held in paper form. So, it looks like major changes are about to come. Since gold will have such a risk-free status, many banks will be encouraged to buy more for bookkeeping purposes. This will also highly encourage every central bank to raise its physical reserves of this shiny yellow metal.”
USAGOLD note: More detail on Basel 3, i.e., the importance of the banking system treating gold as a currency rather than a commodity. Sokolidou is right in pointing out that Basel 3 encourages physical ownership over the paper representations – a circumstance likely to put additional pressure on already stressed physical supplies.