How will Basel III affect the demand for gold?

There is still widespread confusion and uncertainty over the impact that the Basel III regulations might have on the demand for gold. Gold is an “asset” rather than “capital” and therefore accumulating more gold would actually make it harder to meet the more demanding capital ratios, unless it replaced assets with a higher risk weighting. What's more, as the Basel Committee’s proposals currently stand, gold would be classified as relatively illiquid. However, these proposals are only guidelines and European regulators appear increasingly likely to accept gold as a high quality liquid asset. This could be particularly important when central banks eventually withdraw the exceptional liquidity provided under QE. Official recognition of gold as a relatively liquid asset for regulatory purposes could also be another significant step in the precious metal’s growing integration into the international financial architecture.