Something's afoot in the world of high stakes finance.
The Basel Committee for Bank Supervision (BCBS) is about to decide something crucial to bankers, sovereign nations, and gold investors alike.
As part of the Bank of International Settlements (BIS), the BCBS is reviewing the upcoming new Basel III rules. That may sound arcane to you but I promise it's not.
Though rarely discussed in the mainstream press, the all-important Bank of International Settlements is essentially a global central bank to the world's central banks.
Its goal is ostensibly to provide global stability to the monetary and financial systems.
And in a surprise twist that only a few years ago would have been considered preposterous, the BCBS is entertaining whether gold should qualify as a full-fledged Tier 1 capital asset.
Currently, the precious metal is relinquished to a Tier 3 status, deserving no more than a 50% weighting at that.
Here's why that distinction is important and potentially astonishing.
Achieving Tier 1 status would credit gold with the recognition it's been denied ever since Nixon closed the gold window on August 15, 1971.
In essence, it would mark the official recognition that gold is real money.
But that's not the only reason gold is gaining respect. Other factors are brewing that will set the stage for the next leg up in gold prices.
As Banks Teeter, Gold Gains Respect
One of them is the crumbling state of world's banks. Once unwavering, the trust in these financial ivory towers is precarious at best.
In the last couple of months alone, Greek depositors have withdrawn billions of euros in deposits, as the fear of a "Grexit" looms large.
Not to be outdone, Spain’s banks have been emasculated by the Iberian nation's own bursting real estate bubble. After denying for weeks that a bailout would be required, officials finally caved to a "Spailout", giving Spain's banking system a 100 billion euro rescue package.
This phenomenon is not exclusive to the euro zone either.
Around the world, banks are under intense pressure from depositors, regulators, and even tardy ratings agencies.
In fact, Moody's recently downgraded 15 of the world's largest global financial institutions including those "too big to fail" behemoths.
We're talking about Goldman Sachs, Citigroup, Morgan Stanley, Bank of America, Credit Suisse, and a host of other European and foreign banks. Some of them fell as far as three ratings notches.
While the shares of many of those same banks rallied briefly on the news, the longer-term impacts are likely to be ignored by a majority of investors, at their own peril.
These recent downgrades mean many affected banks will have to post higher collateral to their partners when trading derivatives.
Bob Young, managing director of North American banking for Moody's, said every one of the concerned US banks was placed on negative watch, signifying they could be subject to further downgrades.