Gold’s ascent to record-high prices and its significant performance during economic turbulence have spurred renewed discussions about its role in global financial markets. As the London Bullion Market Association (LBMA) gears up for the Global Precious Metals Conference in October, the push to recognize gold as a High-Quality Liquid Asset (HQLA) is gaining traction.
In an interview with Kitco News, Ruth Crowell, CEO of the LBMA, highlighted the progress in advocating for gold’s inclusion as an HQLA. Crowell noted that gold has demonstrated resilience and stability during recent financial crises, including the COVID-19 pandemic and the U.S. banking crisis. These events have shown that gold can function similarly to U.S. Treasuries, both in terms of liquidity and price stability.
“There’s been a huge amount of focus on the U.S. banking crisis last year, in terms of there not being enough HQLA out there. Looking ahead, how do we ensure the system remains resilient?” Crowell said. “We now have data from both the COVID crisis as well as the U.S. banking crisis showing how well gold performed as a high-quality liquid asset. Gold could be the potential solution.”
Gold’s performance this year underscores its potential as a global currency competitor. With prices surpassing $2,500 per ounce, gold has risen more than 20% against the U.S. dollar, euro, and British pound. Year-to-date, gold has increased roughly 17% against the S&P 500, reinforcing its role as a robust investment.
Crowell emphasized gold’s unique advantages, noting that unlike other currencies, it carries no third-party or political risks. This feature, coupled with gold’s performance, enhances its appeal as a stable asset in volatile markets.
A recent milestone for gold was the valuation of the standard 400-ounce gold bar, now worth $1 million at the $2,500 per ounce price. This bar, known as the Good Delivery Bar, is a crucial instrument in the global gold market and central bank reserves. The $1 million valuation highlights the increasing value of gold in the financial landscape.
Crowell also discussed the LBMA’s ongoing efforts to reclassify gold from Tier 1 status to HQLA. This process, while still ongoing, reflects a significant shift towards recognizing gold’s liquidity and stability. The LBMA has made strides in improving market transparency, evidenced by its daily trade reporting, and is working to address gaps left by the disbandment of the London Interbank Offered Rate (LIBOR).
Looking ahead to the LBMA’s conference in Miami, Florida, Crowell noted the event’s continued success and high attendance, reflecting the growing interest in gold and precious metals.
As the global financial landscape evolves, the push to elevate gold’s status as a High-Quality Liquid Asset continues, driven by its demonstrated stability and liquidity in challenging economic conditions.
