As global demand for gold continues to rise as a hedge against crises, debate is intensifying over its true position within the international financial system—especially as it remains excluded from the list of High-Quality Liquid Assets (HQLA) under Basel III standards.
Although gold is currently classified as a Tier 1 asset when held in bank vaults, the World Gold Council believes the time has come to update this classification, particularly in light of gold’s strong performance during recent market volatility.
Appeal for Regulatory Reconsideration
In a recent report, the World Gold Council urged the Basel Committee on Banking Supervision to re-evaluate gold’s regulatory treatment, asserting that the precious metal has demonstrated resilience during periods of severe financial stress.
The report stated: “Amid equity sell-offs, unexpected U.S. Treasury bond declines, and widening bid-ask spreads, gold maintained its liquidity and stability—strengthening its case for inclusion as a high-quality liquid asset.”
Divergent Regulatory Perspectives
According to Basel regulations, gold is treated differently depending on its form:
Allocated gold held in bank vaults is considered equivalent to cash.
Gold used as collateral is subject to a 20% haircut.
Unallocated gold is treated like other commodities, requiring an 85% stable funding factor and receiving a 0% available stable funding factor under the Net Stable Funding Ratio (NSFR).
The World Gold Council contends that these standards no longer reflect gold’s actual behavior and liquidity in modern markets.
Data Supporting the Argument
The report notes that gold’s average daily price volatility over the past six months stood at 0.027%, closely mirroring the 0.028% seen in 30-year U.S. Treasuries.
It also highlighted that gold maintained tight bid-ask spreads even during turbulent periods—averaging 2.2 basis points, compared to 1.8 basis points for 10-year Treasuries and 3.3 basis points for 30-year Treasuries. This indicates strong market depth and liquidity.
Additionally, average daily trading volumes in the over-the-counter gold market (LBMA OTC) between November 2024 and April 2025 reached $145 billion—surpassing 7-10 year U.S. Treasury volumes ($143 billion), and nearly double those of long-term Treasuries ($72 billion).
Gold Regains Status as the “Last Safe Haven”
Analysts note that gold is witnessing renewed investment interest as the “ultimate safe haven,” at a time when the appeal of government bonds is diminishing due to rising inflation and ballooning global debt levels—particularly in the U.S. and Japan, which recently saw weak demand in two long-term bond auctions.
The World Gold Council emphasizes that gold possesses unique attributes that make it highly eligible for top-tier classification: it is globally recognized, credit-risk free, and easily tradable across borders.
A Divisive Regulatory Debate
This report comes just weeks after the European Central Bank published a paper questioning gold’s role as a safe haven, warning that surging demand could potentially destabilize markets.
The ECB stated: “In the event of extreme economic shocks, gold market movements could pose financial stability risks—although eurozone financial sector exposure to gold remains limited relative to other assets. These risks stem from the commodity market’s inherent concentration, leverage, and lack of transparency due to the prevalence of OTC derivatives.”
However, many analysts argue that this view is overstated, pointing to World Gold Council data that demonstrates gold’s consistent liquidity and relative stability compared to many other asset classes—even amid heightened volatility.
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