The debate over gold’s role in global financial markets remains unresolved, even as economic uncertainty and geopolitical tensions boost demand for the precious metal as an investment.
While gold is recognized as a Tier-1 asset under Basel III regulations, it is not currently classified as a high-quality liquid asset (HQLA)—a key designation the World Gold Council (WGC) is advocating to change.
In its latest report, the WGC urges the Basel Committee on Banking Supervision (BCBS) to reclassify gold as an HQLA, citing the heightened market volatility experienced so far this year as evidence of gold’s liquidity and stability.
“Amid recent trade policy uncertainty, financial markets have undergone sharp declines in equities, an unusual selloff in U.S. Treasuries, and wider bid-ask spreads,” the report states. “Gold, however, has demonstrated a highly liquid and orderly market that mitigates risk similarly to assets classified as HQLAs.”
Under current Basel rules, allocated gold held in bank vaults is treated as a Tier-1 asset, enjoying parity with cash. Yet gold used as collateral in clearing houses faces a 20% haircut. Meanwhile, unallocated gold is treated like other commodities, subjected to an 85% required stable funding (RSF) factor and a 0% available stable funding factor under the Net Stable Funding Ratio (NSFR).
The WGC emphasizes that over the past six months, gold has displayed the key characteristics qualifying it as an HQLA. Comparing gold to U.S. Treasuries—widely regarded as top-tier HQLAs—the report finds that gold’s price volatility and market liquidity are on par with these benchmarks.
Using minute-by-minute data, gold’s average daily volatility was 0.027%, slightly higher than the 10-year Treasury note’s 0.016% but comparable to the 30-year Treasury bond’s 0.028%. Additionally, gold’s bid-ask spreads averaged 2.2 basis points—narrower than the 30-year Treasury’s 3.3 bps and close to the 10-year Treasury’s 1.8 bps—demonstrating market precision and resilience.
The report also highlights gold’s deep liquidity pool. Between November 2024 and April 2025, average daily trading volume on the London Bullion Market Association’s over-the-counter market reached US$145 billion—surpassing the US$143 billion average for U.S. Treasuries with maturities of 7-10 years and far exceeding the US$72 billion for longer-dated bonds.
Analysts point to renewed investor interest in gold as a safe-haven amid rising global debt and inflation pressures, which have dampened the appeal of bonds. Japan’s recent disappointing long-dated Treasury auctions underscore this shift.
“Gold is universally recognized, free from credit risk, and accepted globally, making it uniquely suited to meet the stringent liquidity standards required for Level 1 classification,” the WGC said.
The WGC’s call for reclassification follows a recent European Central Bank (ECB) report that questioned gold’s safe-haven status and warned of potential financial stability risks if gold investment surges.
The ECB cautioned that commodity markets, including gold, are vulnerable due to concentration among large firms, leverage, and opacity in over-the-counter derivatives trading. However, many market observers argue the ECB’s concerns overstate risks, noting that gold’s market remains comparatively stable and liquid despite increased volatility.
The WGC’s findings support a reconsideration of gold’s regulatory treatment, potentially paving the way for its recognition as a high-quality liquid asset, reflecting its critical role in managing risk amid global economic uncertainty.
