More Stories

Informist, Tuesday, Jun. 3, 2025

 

MUMBAI – Gold is exhibiting key characteristics of a high-quality liquid asset, as the precious metal's performance over the past six months has shown characteristics associated with high-quality liquid assets, according to the World Gold Council. Volatility, spread, and volumes of the yellow metal for the past six months have matched or exceeded those of other benchmark assets like the 10-year Treasury, the council said.

 

A high-quality liquid asset is defined under the Basel III liquidity framework as an asset that can be easily and immediately converted into cash with little or no loss of value, even in times of stress. The Basel III regulatory framework is an international set of banking regulations developed by the Basel Committee on Banking Supervision to strengthen bank capital requirements, improve risk management, and enhance liquidity and stability in the global financial system.

 

The regulatory framework does not classify gold as a high-quality liquid asset and is therefore excluded from banks' liquidity buffers for regulatory purposes. Basel III's liquidity coverage and net stable funding ratio prioritise assets like sovereign bonds. According to the framework, gold is more of a commodity than a well-established cash-equivalent reserve.

 

Unlike many other assets, gold is universally recognised, free from credit risk, and accepted across borders, making it uniquely suited to meet the global and stress-tested liquidity standards required for Level 1 classification, the council said in a report. "During recent periods of market stress, gold maintained price stability, saw spreads tighten or normalise quickly, and sustained robust trading volumes." 

 

According to the council, gold's average daily volatility during November to April was 0.027%, which was above 0.016%, the volatility of 10-year on-the-run Treasury notes. However, it was in line with 30-year on-the-run US Treasury bonds at 0.028%. On average, gold's intraday bid-ask spreads were 2.2 basis points, slightly wider than the 10-year Treasury's 1.8 bps, but tighter than the 30-year Treasury's 3.3 bps. Gold's London Bullion Market over-the-counter average daily trading volume between November and April was $145 billion per day. The average daily trading volume of US Treasuries with durations of between seven and 10 years during the same period averaged at $143 billion.

 

According to a study by Dirk G. Baur of the University of Western Australia and others, though gold is not currently considered a high-quality liquidity asset, it does seem to satisfy many of the fundamental and market characteristics to qualify as one.  End

 

US$1 = INR 85.59

 

Reported by J. Navya Sruthi

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000  

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.