Core Viewpoint - The potential inclusion of gold as High-Quality Liquid Assets (HQLA) by the Basel Committee on Banking Supervision (BCBS) could significantly impact global asset management strategies, especially as concerns grow over the sustainability of U.S. debt and volatility in U.S. Treasury prices [1][11]. Group 1: Current Market Dynamics - The World Gold Council has recommended that BCBS recognize gold as HQLA, citing recent market volatility due to U.S. trade policy uncertainties, which has led to significant sell-offs in U.S. Treasuries and increased spreads [3][4]. - Major asset management firms are shifting their strategies, favoring shorter-term U.S. Treasuries over long-term ones due to concerns about the U.S. debt situation [4][9]. - The average daily trading volume of gold in the London market has been higher than that of various U.S. Treasury maturities, indicating strong liquidity in the gold market [10]. Group 2: Implications of Gold as HQLA - If gold is recognized as HQLA, it may lead to a reduced demand for U.S. Treasuries, increasing risks in the U.S. bond market [1][11]. - The current treatment of gold as a first-tier asset under Basel III is less favorable compared to U.S. Treasuries, affecting asset managers' willingness to use gold for liquidity management [8][9]. - Despite gold's strong liquidity and risk management attributes, its acceptance as HQLA remains uncertain due to concerns from Western central banks about its impact on sovereign debt markets [5][11]. Group 3: Market Reactions and Future Outlook - Recent geopolitical tensions, such as the Russia-Ukraine conflict, have driven increased investment in gold, with significant inflows into gold ETFs [13][14]. - Analysts predict that if gold's price continues to rise, asset managers may need to adjust their strategies to capitalize on the growing demand for gold as a safe-haven asset [14][15]. - The ongoing uncertainty in the global macroeconomic landscape is expected to sustain or increase the demand for gold, further enhancing its appeal as a liquid asset [17].

Group 1: Core Argument - The World Gold Council has proposed that the Basel Committee on Banking Supervision (BCBS) recognize gold as a High-Quality Liquid Asset (HQLA) due to its strong liquidity and orderly market conditions, especially in light of recent market volatility caused by U.S. trade policy uncertainties [2][3][7]. Group 2: Market Dynamics - Major asset management firms on Wall Street are increasingly avoiding long-term U.S. Treasury bonds due to concerns over the growing U.S. budget deficit and debt burden, leading them to favor shorter-term bonds instead [3][6]. - The average daily trading volume of gold in the London Bullion Market Association (LBMA) has been higher than that of 7-10 year and 20-year U.S. Treasuries, indicating gold's strong liquidity [7]. Group 3: Regulatory Considerations - There are significant uncertainties regarding whether BCBS will classify gold as HQLA, as some Western central banks fear it could negatively impact the demand for sovereign bonds from the U.S. and Europe [4][9]. - The implementation of Basel III regulations has been delayed in the EU and the UK, which may further postpone any decision on gold's HQLA status [10]. Group 4: Investment Sentiment - Despite uncertainties about gold's HQLA status, global investment institutions continue to show strong interest in gold, driven by geopolitical tensions and inflation concerns [11][14]. - The recent increase in gold prices has been attributed to rising geopolitical risks and inflationary pressures, with some hedge funds adjusting their strategies to capitalize on potential price increases [12][14]. Group 5: Future Outlook - Analysts suggest that if gold is recognized as HQLA, it could significantly alter liquidity asset allocation strategies among global asset managers, potentially reducing demand for U.S. Treasuries [9][14]. - The ongoing geopolitical uncertainties and economic conditions are expected to sustain or increase the demand for gold as a safe-haven asset in the coming months [8][15].

Core Viewpoint - The World Gold Council (WGC) is advocating for the Basel Committee on Banking Supervision (BCBS) to reconsider the classification of gold as a High-Quality Liquid Asset (HQLA) due to significant market volatility observed this year [2][3] Group 1: Gold's Market Performance - Gold has demonstrated key characteristics necessary for HQLA qualification, maintaining a daily volatility of 0.027%, which is comparable to 30-year U.S. Treasury bonds [3] - The average bid-ask spread for gold is approximately 2.2 basis points, which is slightly wider than the 10-year U.S. Treasury bonds at 1.8 basis points but narrower than the 30-year bonds at 3.3 basis points [3] - The average daily trading volume of gold in the London Bullion Market Association (LBMA) from November 2024 to April 2025 was $145 billion, surpassing the $143 billion for 7-10 year U.S. Treasuries [3] Group 2: Regulatory Context - Currently, physical gold held in bank vaults is classified as a Level 1 asset, while gold held as collateral in clearing institutions is subject to a 20% haircut [2] - Non-physical gold, such as paper gold, is treated as a regular commodity and incurs an 85% stable funding requirement under the Net Stable Funding Ratio (NSFR) rules, with a zero available stable funding (ASF) ratio [2] Group 3: Investment Demand and Perception - Analysts believe that gold is experiencing renewed investor demand as a safe-haven asset amid rising global debt levels and inflation, which diminishes the attractiveness of bonds [3] - The European Central Bank (ECB) recently questioned gold's role as a safe-haven asset, suggesting that a resurgence in gold investment demand could destabilize markets [4] - Despite the ECB's concerns, many analysts argue that gold markets remain liquid and relatively stable compared to other asset classes [5]