I am sorry if I repeat myself, but this is a zombie story that just won't die. I refer you to the Basel III requirments: http://www.bis.org/publ/bcbs128b.pdf footnote 32 on page 26
"However, at national discretion, gold bullion held in own vaults or on an allocated basis TO THE EXTENT BACKED BY BULLION LIABLITIES (my emphasis) can be treated as cash and therefore risk-weighted at 0%."
"Backed by Bullion Liabilities" means that the gold position has an offsetting transaction (forwards sale, paid swap or sold futures contracts) where the changes in market value are equal and opposite to the change in value of the physical gold owned by the bank.
The value of the net gold position (physical and derivatives) behaves like the value of cash, and can be treated like cash in risk capital calculations.
Gold has not been "rerated"!
Hedged gold positions have been excused for the capital calculation. Open gold positions are still subject to capital requirements which haven't change since 1997.
BIS and the Central banks do not regard gold as inherently risk free.
Why?
Central banks are primarily concerned with ensuring that banks can repay their depositors. Deposits are repaid in cash.
Any asset that has to be sold so that depositors can be paid involves the risk that the assets have lost value and will not raise enough cash to pay depositors. Those assets include gold. So banks have to hold capital to make up any potential shortfall.
Banks will not be buying gold because of Capital relief under Basel III!
I apologise to those of you who have had to read this rant twice...
