$510 Billion Daily Gold Trade — Banks Challenge Liquidity Rules
By John Nada·Jun 28, 2026·2 min read
Gold trades $510 billion daily, yet isn't a High-Quality Liquid Asset. LBMA urges regulatory change, aiming to boost institutional demand.
Gold trades $510 billion globally every day, but despite its massive volume, it's not considered a High-Quality Liquid Asset (HQLA) under current banking regulations. This exclusion is raising eyebrows especially when physical gold, sitting in central banks' vaults, behaves like a Tier 1 asset, according to the London Bullion Market Association (LBMA).
The Basel III framework requires banks to hold HQLAs to survive a 30-day funding stress without external aid. These include cash and government bonds, but not gold. Originally left out due to concerns about volatility and lack of trading data in 2010, gold's exclusion persists despite its liquidity now rivaling major sovereign bond markets, GoldSilver.com reported.
The LBMA recently petitioned the Bank of England's Prudential Regulation Authority to reevaluate gold's status. They argue that reclassifying gold would lower holding costs, making it more attractive for institutions and boosting demand. Banks already hold significant gold reserves, often in the Bank of England's custody, which can be quickly monetized.
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Despite its 0% capital risk weight, an endorsement of stability, gold suffers an 85% Required Stable Funding (RSF) factor under Basel III, akin to commodities like corn and lead. This imposes significant costs on banks, discouraging gold holding at scale. Yet, according to the World Gold Council, gold behaves unlike other commodities, showing liquidity characteristics closer to US Treasury bonds.
Recent stress data supports gold's liquidity profile. During January 2026's geopolitical turmoil, gold trading volumes spiked to $965 billion daily. This surge demonstrated gold's resilience, contradicting its current commodity designation.
The LBMA's push is part of a broader trend towards recognizing gold's true financial characteristics. With central banks accumulating record levels of gold, the gap between regulatory classifications and empirical reality is narrowing. If the LBMA's lobbying is successful, it could redefine gold's role in banking balance sheets globally, potentially spurring a structural shift in institutional gold demand.