Rumors that gold will be recognized under Basel III rules as a Tier-1 liquid asset by July 1 have been spreading like wildfire through the gold market. However, on Wednesday, the LBMA said these rumors are incorrect. “Gold is not due to be reclassified as a Level 1 HQLA [high-quality liquid asset] – if it were, we and the WGC [World Gold Council] would be the first to shout about it. LBMA continues to advocate with the central bank and prudential regulatory community that gold meets all criteria to warrant HQLA status,” the LBMA said. Analysts have speculated that an official rerating of gold under Basel III regulations could drive investment demand for the precious metal significantly higher through the rest of the year. However, the LBMA said this impression results from misunderstandings of Basel’s view on gold. The LBMA noted that since 1988, gold has always been recognized as a Tier-1 asset; however, it is not recognized as a high-quality liquid asset. The LBMA has been lobbying for years to have gold recognized as a Level 1 HQLA, which is different from its Tier-1 status. At the same time, Basel also has different categories for gold. Allocated gold held in bank vaults is considered a Tier-1 asset, holding the same recognition as cash. However, gold held as collateral among clearing houses is subject to a 20% reduction in value. Because it is not considered an HQLA, unallocated gold is treated like other commodities and is subject to an 85% required stable funding (RSF) factor and a 0% available stable funding factor under the Net Stable Funding Ratio (NSFR) rules. Despite its aggressive lobbying in favor of gold as an HQLA, the LBMA doesn’t have a timeline for its goal. The association noted that the European Union, U.K., and U.S. have consistently delayed the implementation of the final Basel III rules. “The EU has delayed some of the key reforms to January 2026. The U.K. has delayed implementation to 2027, and in the U.S., given the current political landscape, which favors less regulation and heavy lobbying, the timetable is unclear,” the analysts said.
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