Basel III and Gold

Basel III is the third iteration of international banking regulations. For precious metals, the most consequential change was the reclassification of physical gold as a Tier 1 zero-risk-weight asset, effective June 28, 2021.

What Changed

Before Basel III, physical gold held by banks was treated as a Tier 3 asset. After the reclassification, physical gold is now on par with cash and government bonds for bank capital purposes — potentially increasing institutional demand for physical metal.

The NSFR Rule and Paper Gold

Basel III also introduced the Net Stable Funding Ratio, which imposes additional costs on unallocated gold positions (paper gold, futures). This theoretically shifts institutional preference toward physical gold over paper gold instruments.