Is Gold a Zero Risk Financial Asset?

Gold has been called many things over the past several years. The shiny yellow metal is seen as a safe-haven to some, but a barbaric lifeless asset by others. In short, gold has trouble receiving a wide range of support as a key player in the global financial system. However, new developments may slowly change how investors and institutions view the precious metal.

Earlier this month, U.S. federal bank regulators issued a proposed rule-making note regarding capital risk-weightings for various assets. The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Federal Reserve asked for comments on a move that would place a “zero-risk-weight” rating on gold bullion held in banking organization’s own vaults, or held in another depository institution’s vaults on an allocated basis.

The full note can be found at FDIC.gov and Section 11 on page 57 states, “A zero percent risk weight to cash owned and held in all of a banking organization’s offices or in transit; gold bullion held in the banking organization’s own vaults, or held in another depository institution’s vaults on an allocated basis to the extent gold bullion assets are offset by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions with a central counterparty where there is no assumption of ongoing counterparty credit risk by the central counterparty after settlement of the trade and associated default fund contributions.”

Read more: The Market Oracle, 28 June 2012