Crude oil, corn futures and more are troubling individuals in the commodities market, but for those investing in gold, price fluctuations are not as much of a concern. Recent reports in the media have shown that gold is a powerful holding, performing well for more than a decade now. It has been said that gold bullion could potentially be considered a "zero-risk-weight" asset by the US Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
A move like this would certainly shake things up and change minds over the value of gold assets among skeptics. While precious metals have historically been considered low in risk, if the zero risk labeling does become reality, then investors should see gold in a whole new light.
A reporter for Resource Investor had this to say about the potential changes in the way gold bullion is valued for banks, "The move will essentially place gold on the same risk level as cold hard cash, zero percent. Historically, gold has received a risk weighting of 50%. If the proposal stands, it appears that banks will have more flexibility and will not have their regulatory capital ratios punished for holding gold as a safe-haven."
A move like this would be historic, but analysis of the past 11.5 years have shown those investing in gold today that it is also a logical move with plenty of financial wisdom to support it. As a writer at Futures Magazine noted, gold assets have performed exceptionally since 2001 despite major economic problems in Europe, difficult economies worldwide and even so many rises and drops in the stock markets.
More than 11 consecutive years of rising value means that precious metals are beating out nearly every other asset class. It should come as no surprise that even after selling off $1.4 million in gold holdings, the European Central Bank holds well over $667 billion in physical gold. All of these indicators show that the past of gold should correlate very much with its future. Its position as an asset that can safeguard against changes in currency values remains incredibly solid - all good news for today's gold investor.
If gold does become zero risk weighted then it would mean that gold would join assets such as British gilts, US Treasuries and German Bunds. The fact that this remains the case is somewhat perplexing to many economic observers.
As one reporter noted, "Interestingly, Standard & Poor’s downgraded the United States’ credit rating for the first time ever last year. Yesterday, Egan-Jones credit ratings agency downgraded Germany by one notch from AA- to A+ with a negative watch. The effort to reevaluate the meaning of “zero risk” appears to be long overdue."
Those assets have also been traditional safe havens for investors, but things are now changing. If changes like this do continue then there is a very strong chance that gold and other precious metals will become an even more crucial part of an investor's portfolio. Whether or not gold bullion will end up being weighted this way remains to be seen, but the mere fact that this is being considered is a signal to many that changes in how they perceive the risks attached to their assets may be in order.
For gold investors the long term strategy appears to be finding broader support, and that is certainly something to smile about.
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