The bailout theater in Europe will continue indefinitely

The bailout showcase in Europe will continue indefinitely, because strong economic growth is a fantasy and austerity is politically untenable. As hopes for viable, sustainable solutions fail, expect the authorities to print money. And print BIG!

Perhaps the precious metals markets are anticipating that the cash printing part of the "solution" is just around the corner. Germany's Chancellor Angela Merkel, a key decision maker in this whole euro saga, has been outspoken in her opposition to such bailout moves. But she gave a little ground at last week's summit.

Underreported: Regulators to Stop Penalizing Banks for Holding Gold as a Reserve Asset

Last month, the U.S. Federal Reserve, FDIC, and Treasury Department quietly issued a document updating regulations governing bank reserves. The document contained a bombshell almost no one is talking about.

Regulators proposed granting physical gold bullion the same "no risk" weighting as cash and U.S. Treasuries.

This is the actual language from the memo: "In this NPR (notice of proposed rulemaking), the agencies propose to apply the following risk weights for exposures... 1) A zero percent risk weight to cash owned and held in all of a banking organization's offices or in transit; gold bullion held in the banking organization's own vaults, or held in another depository institution's vaults on an allocated basis..."

Banks are currently assessed a 50% penalty on the value of gold holdings when calculating reserves.
This provides a significant incentive for banks to limit gold holdings and instead hold their reserves in cash, U.S. Treasuries, and the government bonds issued by a few other developed nations such as the UK and Germany.

Of course, in my view, gold bullion is an asset totally devoid of counter-party risks experienced by the other "no risk" assets. But even if regulators won't acknowledge the preeminence of gold, they are at least considering leveling the playing field so banks can decide for themselves what the relative risks are. Banks will most likely, aggressively add gold to their reserve mix should the new rule take effect. This change in how gold is viewed within the banking system could be the most bullish development for gold in years. It would represent a major advance in the re-monetization of gold.

So what are the chances that the rule change will actually take effect? Consider this…some of the powerful organizations, who would have the ability to block it, including the Fed, appear to be endorsing it.

Also consider:

• The Federal Reserve wants controlled devaluation of the dollar in order to reduce the burden of debt and entitlements denominated in dollars.
• Private banks are stuffed to the gills with the current roster of "zero-risk" reserve assets and are finding them to be anything but "zero-risk." Inflation is constantly eroding the value of the cash and Treasuries are looking more and more like an asset bubble ready to pop, so gold looks especially attractive as an alternative.

As far as Hong Kong goes, HK has secured a key position in the international gold market. This important role is attributed to a number of factors. They include political stability, free trade, a respect for private ownership, a sound and established legal system, good communications networks, sophisticated telecommunications facilities, a strong financial system and a stringent regulatory system.

Yet another important factor worth noting is that Hong Kong spans across the Asia time zone and it provides pricing information for the gold market after the close of New York market and before the opening of the London market.

The rule may take effect in January 2013 barring any unforeseen opposition.