A small change to a Swiss regulation has created new opportunities in precious metals markets.
In July 2025, Basel III banking regulations took effect in the United States for the first time, and banks can now count physical gold the same way they count cash when calculating their reserves.
Before this, if a bank owned $1 billion in gold, regulators would only let it count $500 million of it towards its reserves.
Now banks can count the full billion.
While this appears to be an accounting change, it makes gold more attractive for banks to hold. The reclassification eliminates the capital penalties that made gold positions expensive for financial institutions to maintain, which could increase institutional demand over time.
Here’s what you need to know about Basel III and what it means for gold investors.
Basel III and Gold; What Changed?
The Basel III regulation may sound complicated, but at its core, it’s pretty simple. After banks around the world nearly collapsed in 2008, regulators got together and realized that banks did not have enough capital on hand to help bail them out in the event of a crisis.
The regulation works like enhanced capital requirements, ensuring banks maintain adequate high-quality assets during times of great financial stress. This framework is known as Basel III, after the city in Switzerland where this regulatory gathering took place.
The part that matters for gold investors is a designation known as Tier-1 capital. Tier-1 capital is considered the safest asset banks can own, and it primarily consists of cash, government bonds, and now physical gold.
Before July 2025, if a bank wanted to count gold toward their safety reserves, it had to cut its value in half. For example, a bank holding 100 tons of gold could only report 50 tons during an audit.
This changed in July 2025. Banks can now count every ounce of physical gold at full value, the same as cash or Treasury bonds. This makes gold much more desirable for banks to own as a core holding.
Why Institutional Investors Care
The major money managers — pension funds, insurers, and wealth funds — manage trillions of dollars. Banks, pension funds, and insurance companies are bound to strict investment guidelines.
Before Basel III, gold was expensive for them to own because of capital charges that required banks to hold extra funding against gold positions and discount gold’s value by 50% when calculating reserves.
Now that’s gone. Gold competes on equal footing with government bonds for the first time. When you’re managing a pension fund with $500 billion in assets, even a small shift toward gold means serious buying power entering the market.
The numbers tell the story: pension funds alone manage more than $38 trillion. Insurance companies control another $8 trillion. If these institutions move just 1% of their holdings into gold, that’s $430 billion in new demand. For context, all the gold ever mined in human history is worth about $12-17 trillion at current prices.
Paper Gold Is Less Desirable
Basel III didn’t only affect how banks count physical gold. It also made paper gold — instruments such as futures and unallocated gold accounts — much less attractive. The new rules require banks to set aside extra funding for these paper instruments, increasing their cost to hold.
This pushes institutions toward real, physical gold they can touch and store. ETFs and futures contracts don’t qualify for Basel III’s favorable treatment. Banks need actual physical gold to meet the new requirements.
Basel III also includes the Net Stable Funding Ratio (NSFR), which requires banks to secure stable funding for 85% of their precious metals exposure. This makes unallocated gold positions much more expensive for banks to maintain, pushing them toward physical gold instead.
How Institutional Behavior Is Already Changing
Central banks began buying gold aggressively even before Basel III was fully implemented, particularly in China, Poland, and Singapore. And you may be wondering — Why are central banks accumulating gold?
Central banks have been buying gold for various reasons, including diversification, geopolitical concerns, and monetary policy flexibility.
Basel III wasn’t the primary driver of this trend, but the regulatory changes now give financial institutions additional reasons to favor physical gold over derivative instruments and paper-based gold exposure.
And central banks are just the beginning.
Large asset managers are quietly building gold positions too. Insurance companies are exploring how much gold they can add without spooking regulators, and even corporate treasurers are asking whether they should hold some gold alongside their cash reserves.
What This Means for the Gold Market and Price Stability
Institutions don’t trade gold like individual investors. A pension fund doesn’t panic-sell because gold dropped $50 in a day. They buy and hold for years, sometimes decades. Traders call this “sticky demand.”
More institutional ownership usually leads to steadier prices over time. This Basel III ruling underlines gold’s importance in the monetary system and suggests banks may increase their physical gold holdings over the longer term, although the timing and extent remain uncertain.
Banks have been buying gold for several years, which has already had an impact on prices. Basel III may accelerate this trend by making physical gold more economically attractive for financial institutions. While this may lead to more stable pricing over time, gold prices remain subject to many market forces and could still experience volatility.
Why Retail Investors Should Pay Attention
Individual investors might question the relevance of institutional allocation trends. However, institutional buying patterns create trends that often last years, making them worth understanding for long-term portfolio planning.
The key is recognizing this shift early. Physical gold and silver now have the same regulatory treatment as government bonds under Basel III.
How to Build a Basel-Ready Gold Position
As an individual investor, the strategy should be simple: buy physical gold.
Paper gold products are easy to trade, but they don’t qualify for the favorable regulatory treatment that makes physical metals attractive to institutions under Basel III. Individual investors benefit indirectly through potential increased institutional demand for physical metals.
If you don’t know where to begin, start by buying standard bullion products — Government-minted coins like American Gold Eagles and Canadian Maple Leafs, or bars from reputable refiners. Bullion trades close to spot price and is liquid, which you’ll want if you ever need to sell.
Most importantly, you should buy from well-established and trustworthy dealers who offer standard bullion products. As institutional demand for physical gold grows exponentially, quality and authenticity matter more than ever.
The Bottom Line
Basel III changed the game for gold in July 2025. Gold was only considered for 50% of its market value, but now regulators consider it a Tier-1 bank asset, like cash and government bonds.
As an individual investor, the message is clear: The world’s biggest money managers just got permission to buy gold like never before, and they’re not waiting.
The question isn’t whether gold prices will be volatile tomorrow or next week. The question is where gold stands in five or ten years when pension funds, insurers, and wealth funds have their positions well established.
Call us to learn more about precious metals as a portfolio allocation strategy. Our non-commission brokers can discuss your options and assist you in navigating these important changes.
This is a two-part series about the impact of Basel III.
Click here to read Protecting your Wealth: How Basel III Makes Gold a Safer Bet