Basel 3's Gold Rules Start Monday: It probably won't be the day of deliverance
Many people involved with the monetary metals may be eagerly awaiting Monday, when the "Basel 3" regulations on unallocated gold held by bullion banks take effect in the European Union, supposedly making the unallocated business prohibitively expensive.
Of course, there are great hopes that implementation of the rules will begin to explode the fraud of "paper gold" by which gold's price long has been suppressed with the assistance of central banks.
But Monday doesn't seem likely to be the day of deliverance.
In the first place, most of the banks transacting in unallocated gold are in London and not subject to the European Banking Authority, which is to enforce the Basel 3 rules in the EU. The Bank of England well may adopt the Basel 3 rules for the United Kingdom, but no official decision has been made yet.
Secondly, wherever the Basel 3 rules on unallocated gold take effect, any bullion banks subject to them would not be getting out of the unallocated gold business abruptly on one day.
The banks would be diminishing their unallocated gold trade gradually, and perhaps already have been engaged in that. Whatever the effects of such diminished trading are, they likely will be gradual as well.
Third, who can ensure that the new rules will actually be enforced and that governments will not provide a secret exemption if they consider essential to national security the camouflage bullion bank trading in unallocated gold provides to government gold suppression policy?
The supposedly prohibitive expense the new rules would impose on bullion banks trading in unallocated gold – a vast increase in offsetting capital – might be covered by governments themselves and not reported.
Fourth, governments seeking to suppress the gold price could find other intermediaries for camouflage – brokerages or banks outside jurisdictions enforcing Basel 3 rules.
And fifth, governments seeking to continue controlling the gold price could simply do it in the open again, as they used to do it in the days of the gold standard and the London Gold Pool. They could try to tax gold transactions prohibitively.
This might not be terribly effective, since not all governments would cooperate with it and two systems of gold pricing would be publicized. But it would be a mistake to underestimate government's capacity for totalitarianism even in the nominally democratic West.
If there is to be a big change in gold pricing, it likely will have the same sort of cause as the cause of the last big change, the collapse of the London Gold Pool – that is, the exhaustion of the supply of real metal that the price-suppressing governments are prepared to lose.
The change also probably will be made in a way that makes central banks seem to be sponsoring and controlling it, and probably will put gold into a framework in which central banks can sustain another 50 years or so of gold price control, if at a higher price whose maintenance causes less strain and political conflict in the world financial system.
Of course, given government's power to create infinite money and deploy it in secret, and financial journalism's corruption, cowardice, and uselessness to the public interest, Basel 3 rules may come to seem to have had no impact at all. But something almost surely is happening with Basel 3 and gold. For if Basel 3 had no meaning for gold, the London Bullion Market Association and the World Gold Council would not have issued such a desperate protest against it six weeks ago, proclaiming that Basel 3 threatens to put the bullion banks out of business.
That kind of thing had never happened before.
Indeed, many things lately have been happening with gold that have never happened before, or not for a long time, even as two principles will remain eternal – that gold is the ultimate money, money without counterparty risk, money everywhere at all times, money independent of government, and thus a prerequisite of individual liberty, and that government finds it very difficult to abide individual liberty.