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European central banks have become net buyers of gold for the first time in more than two decades, a significant sign that the role of precious metals in currency markets is not only being reassessed but actually changing, reported The Financial Times, while there also is a campaign afoot to include gold as a Tier 1 bank asset with the Basel Committee on Banking Supervision.

This week the London Bullion Market Association is meeting in Montreal, the biggest gold industry conference of the year. China, Mexico, Russia, South Korea and Thailand central banks are also net buyers of the yellow metal.

Tier 1 gold

However, the Basel III initiative is highly significant too because it would trigger a far wider use of gold within the banking system, not quite a return to the gold standard but the next best thing as far as demand for the yellow metal is concerned.

Presently Tier 1 assets include government bonds such as Greek bonds and a widening of Tier 1 to include precious metals is seen as a way of shoring up confidence in the banking sector with assets that do not require official rating because there is zero counter-party risk.

The Chinese central bank has openly called for gold to be a part of a basket of assets used to support a new super-currency from the IMF, another indication of mounting support at the highest levels for giving a greater role to gold in the global economy, and complained about the ongoing gold price suppression in cables revealed by Wikileaks

Silver too?

There is presently no pressure for silver to return to its old monetary role. Nonetheless if gold becomes more important then it would be logical to include silver, if only because the additional demand for gold would put considerable upward pressure on the gold price and silver is an alternative precious metal.

That is where the interest comes for gold and silver speculators of course. There is not sufficient gold in all of the world, for example, to back the US dollar fully with gold, and to do so estimates of the gold price range from $10-12,000 an ounce.

Silver is even rarer than gold with far smaller physical stocks and very little capacity to expand production that is often a by-product of huge copper mines.

Whatever the short-term vagaries of financial markets this autumn the long-term demand for gold seems assured as a money that central bankers cannot print, ironically something central banks are now acknowledging as a virtue by buying gold themselves. This video with ArabianMoney publisher and editor Peter Cooper from the Dubai Mall Gold Souk explains the gold price dilemma this autumn