The MGS Precious Metals Blog

Manhattan Gold & Silver is an industry leader in precious metal pricing and refining with more than 30 years of experience. During our time in the business, we’ve found the topic of precious metals to be a vast and interesting one. Here on our precious metals blog, we write in-depth posts about the science of precious metal refining, historical and modern uses for precious metals, market news, and much more. Subscribe to our RSS feed to stay current, and discuss the latest posts on our Facebook page.

Types of Bullion and Their Uses

May 22, 2019 07:00

Purchasing bullion is a great way to diversify a hard-asset portfolio. Of course, the amounts and types of precious metals you buy are important factors in investment diversification – but what about the types (i.e. form factors) of bullion?

One of the common questions first-time investors ask when they see all of the ingots, bars, coins, grains, rounds, and other types of bullion available is “what’s the difference?” Since the inherent value is the same, there is no strategic advantage to owning, say, coins instead of bars. But, there are some reasons why investors may prefer one form factor over others.

For example, bullion coins’ smaller sizes and difficult-to-counterfeit designs give them better liquidity compared to ingots, bars, or rounds. However, seigniorage fees typically push the cost of bullion coins over the spot price for their metal content. So if you can afford to purchase more metal at once, and you have a secure space to store that amount, you’d save some money upfront by purchasing bars instead of coins.

In the infographic below, we’ve outlined the key differentiators for the most popular bullion products: bars, coins, and fractional.

Third Basel Accord’s New Definition of ‘Monetary Gold’ Now in Effect

April 1, 2019 07:00
Third Basel Accord’s New Definition of ‘Monetary Gold’ Now in Effect

The Basel Accords refer to the global, voluntary regulatory framework on banking regulations related to capital adequacy, stress testing, and market liquidity risk. The third installment of Accords, Basel III, was finalized in 2010 in response to the financial regulation deficiencies revealed by the financial crisis of 2007–08. Although scheduled to be completely implemented during a two-year window between 2013 until 2015, the implementation deadlines for various changes have all been extended repeatedly. However, some changes regarding definitions of "Tier 3" capital are finally in effect.

The overall intent of Basel III is to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. By April 1, 2019, all Systemically Important Financial Institutions (SIFI) must comply with Basel III's new rules for Net Stable Funding Ratio (NSF) and Liquidity – which includes an updated definition for monetary gold as banking capital: “[...] physical gold held in [the bank’s] own vaults or in trust.”

Under Basel II, gold was classified as Tier 3 capital and treated as a risky and illiquid asset. This meant that gold reserves on a financial institution's balance sheet were subject to a Risk Weighting Assessment (RWA) of 50%. In other words, banks could only apply half of gold's market value towards their solvency requirements. Under Basel III, monetary gold now qualifies as a Tier 1 asset, and is 100% valued in calculations establishing banking viability. However, gold derivatives (which are not considered the same as monetary gold), are excluded from this new framework.

So basically, monetary gold is now counted as risk-free capital among banks. On top of that, SIFIs are now required to quadruple their reserves compared to the minimum requirements established in Basel II. Although these regulations aren’t getting tons of publicity right now, we think it’s safe to say that the changes in gold supplies, market demand, and prices will ripple on for years as a result. As for how quickly and drastically these changes develop, only time will be able to tell. To keep a close eye on developing gold prices, download our app and start setting those price alerts.

2019 Market Outlook for Gold

January 30, 2019 15:14
2019 Market Outlook for Gold

Gold is a valued commodity around the globe. Its price may fluctuate, but it's never arbitrary – many types of current events and economic trends factor into whether the price of gold increases or decreases. It’s probably safe to say that these variables were plentiful throughout 2018, so it’s no surprise that it was certainly an interesting year for gold prices.
In an annual report from the World Gold Council (WGC), the organization analyzed the economic trends and market factors that influenced the price gold, what investors and speculators can expect from the market in 2019, and the “why” behind it all. You can read the full report by visiting the WGC’s website, but some of the key findings, takeaways, and predictions we found to be interesting are:

  • Gold prices started strong in 2018, but were negatively affected from about April to October as the USD got stronger and the Federal Reserve increased interest rates while other countries remained accommodative. Due to large sell-offs of company stocks and political uncertainty stemming from the US midterm elections, gold prices managed to rally in the fourth quarter.
  • Central banks continue to buy gold to diversify their foreign reserves and hedge against fiat currency risk. This is particularly true of central banks in emerging markets, which tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a greater variety of countries added gold to their foreign reserves.
  • Factors to watch in 2019  include expensive valuations and higher market volatility, political and economic instability in Europe, potential higher inflation from protectionist policies, and the increased likelihood of a global recession.

Do you think the WGC’s predictions for 2019 are accurate? Don’t forget, you can keep track of the latest gold pricing trends (and calculate the estimated value of any scrap or bullion you're holding) on your phone with the MGS smartphone app!

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