Basel III, BIS, and Physical Gold: What the Rules Really Mean for Banks and Precious Metals
Note: In a recent video for Membership Only Members, it may have been implied that Basel III was law. That is not true.
This article explains how Basell III works and how it "separates banks" that hold precious metals from banks that still show "paper gold" on their balance sheets.
The message in the video presented to Edu Matrix Members still holds. Take procession of "all" of your precious metals.
What the framework of the Bank for International Settlements (BIS), have dramatically changed how banks treat gold and silver on their balance sheets. Despite widespread claims online, there is no global law forcing banks to hold physical precious metals.
What Basel III does accomplish is more subtle — and far more impactful: it rewards physical, allocated gold while making paper gold and unallocated metal far more expensive for banks to hold.
This article explains the facts behind the headlines, clears up misinformation, and shows why Basel III quietly reshaped the global precious metals market.
What Is Basel III?
Basel III is a set of international banking standards created after the 2008 financial crisis to reduce systemic risk, excessive leverage, and hidden counterparty exposure in the global banking system.
Key goals of Basel III include:
Strengthening bank capital requirements
Reducing reliance on leveraged paper assets
Improving liquidity and long-term funding stability
Basel III standards are not laws by themselves. They are adopted into national regulations by individual countries and enforced through domestic banking authorities.
Did the BIS Force Banks to Hold Physical Gold?
No.
There is no BIS rule or Basel III law that forces banks or central banks to buy or hold physical gold or silver.
However, Basel III changes how different forms of gold are classified and capitalized, which has major consequences for banks’ behavior.
How Basel III Changed Gold’s Status in Banking
Physical Gold Is Now a High-Quality Asset
Under Basel III:
Physical, allocated gold can qualify as a high-quality asset
In many jurisdictions, it receives a 0% risk weighting
This means physical gold does not harm a bank’s capital ratios
This places physical gold closer to cash or sovereign bonds in regulatory treatment — a major shift from previous frameworks.
Why Paper Gold Is Penalized Under Basel III
What Counts as Paper Gold?
Paper gold includes:
Unallocated gold accounts
Certain derivatives and forward contracts
Gold positions without specific bars assigned
Basel III Makes Paper Gold Costly
Under Basel III:
Unallocated gold requires significantly more capital backing
Banks must meet stricter Net Stable Funding Ratio (NSFR) requirements
Leverage in paper gold markets is sharply reduced
As a result, paper gold becomes balance-sheet inefficient for banks.
Why Banks Are Moving Toward Physical Gold
Basel III does not mandate physical gold — it incentivizes it.
For banks:
Physical gold improves capital efficiency
Paper gold ties up funding and capital
Allocated metal reduces counterparty and settlement risk
This regulatory math explains why Basel III is often described as a quiet reset of the precious metals market.
What About Silver Under Basel III?
Silver does not receive the same treatment as gold because:
Gold is classified as a monetary asset
Silver is treated primarily as an industrial commodity
However:
Physical silver is still favored over unallocated paper silver
Highly leveraged silver trading is discouraged under Basel III rules
The effect is similar, though weaker than with gold.
Central Banks vs Commercial Banks
Central Banks
Central banks are not directly governed by Basel III in the same way commercial banks are. Their gold purchases are policy decisions, not regulatory requirements.
In recent years, many central banks have:
Increased physical gold reserves
Reduced exposure to foreign debt
Used gold as a hedge against sanctions and currency risk
Commercial Banks
Commercial banks must comply with Basel III capital rules. For them:
Physical gold is balance-sheet friendly
Paper gold is capital-intensive
Excessive paper exposure is discouraged
This is where Basel III has its strongest real-world impact.
Why Basel III Matters for the Financial System
Basel III:
Reduces systemic risk in precious metals markets
Discourages excessive paper claims on finite physical supply
Encourages transparency and real asset backing
These changes improve financial stability — but also alter how gold and silver markets function.
What Basel III Means for Investors
Basel III does not guarantee higher gold or silver prices. However, it:
Favors physical ownership over paper exposure
Weakens highly leveraged pricing mechanisms
Increases the strategic importance of real metal
For long-term investors, understanding these rules helps separate structural trends from short-term speculation.
Final Takeaway
There is no BIS law requiring banks to hold physical precious metals.
What Basel III actually does is:
Reward physical, allocated gold
Penalize unallocated and paper gold
Shift banking incentives toward real assets
This quiet regulatory shift explains why physical gold has regained prominence — not through force, but through financial logic.
