Gold Is Quietly Replacing Treasuries

What Basel III Endgame Means for 2025

“The most powerful forces in the world are invisible—debt, energy, and belief.”
— Anonymous

As I mentioned a few weeks ago, the next time headlines light up with Trump versus Elon, ask yourself: what’s really going on behind the drama?

It happened again just last week. Trump accused Musk of receiving more government subsidies “than any human being in history.” He suggested rescinding Musk’s government contracts and even hinted that Musk might have to “head back home” to South Africa.

Musk fired back on X, challenging Trump to “cut it all,” calling the bill “utterly insane and destructive,” mocking it as “porky-pig,” and threatening to fund primary challengers against Republicans who support it. He even floated the idea of forming a new “America Party.”

But while media outlets obsessed over the spectacle, something far more consequential happened—largely ignored in the news cycle. On July 1, 2025, the final phase of Basel III banking regulations quietly took effect in the U.S., a reform designed to make the global financial system more resilient in the wake of the 2008 crisis. Known as the Basel III Endgame, this regulatory shift could reshape how banks manage risk—and why many are now turning to physical gold.

Here’s what’s changing, what’s misunderstood, and why it matters.

Basel III, developed by international regulators after the 2008 crisis, is designed to help banks survive shocks by holding more capital, managing risk better, and increasing transparency. The “Endgame” phase, finalized in 2017 and adapted for the U.S. in 2023, applies to banks with over $100 billion in assets. Its rollout began July 1, 2025, and continues through 2028.

One of the biggest changes? Capital requirements are rising—especially for the largest institutions. Banks like JPMorgan and Bank of America now need about 9% more capital as a cushion against potential losses.

Mid-sized banks ($100–$250 billion in assets) face somewhat lighter rules, but with a major new requirement: they must now report unrealized losses on certain assets—particularly securities that have declined in market value but haven’t yet been sold or defaulted.

This is especially significant in sectors like commercial real estate, where many banks hold large portfolios of office buildings, retail centers, and multifamily properties that have dropped in value due to rising interest rates, remote work trends, and weakening demand.

Under previous rules, banks could often keep these paper losses off their capital books unless they sold the asset or it went into default. Now, they must include these declines in their capital calculations—even if the losses remain unrealized.

The result is greater transparency but also greater strain: some banks may appear weaker on paper, even if their day-to-day operations haven’t changed. It also pressures institutions to reassess their portfolios more frequently and could discourage them from holding volatile or long-dated assets that are sensitive to interest rate swings.

Another key change in the Endgame is how banks calculate risk. In the past, many used their own internal models, which often downplayed how much they could lose in a crisis. The new rules replace those with standardized formulas for things like cyberattacks, fraud, and risky trading activity—making it harder to hide potential trouble and easier for regulators to compare banks across the board.

At the same time, regulators backed off from applying the strictest rules to every bank. After industry pushback in 2024, they chose to focus the toughest requirements on the biggest, most interconnected institutions. Smaller and mid-sized banks still face higher standards, but with more flexibility. The goal is to strengthen the system without crushing local and regional banks that serve smaller communities.

There’s a common myth circulating in financial circles: that Basel III upgrades gold to Tier 1 High-Quality Liquid Asset (HQLA) status—putting it on par with cash or government bonds. That’s not true. Both the World Gold Council and the London Bullion Market Association have confirmed that gold does not qualify as an HQLA under Basel’s liquidity rules.

But that doesn’t mean gold has no regulatory advantage. Physical gold carries a 0% risk weight for capital purposes, meaning banks can hold it without having to set aside extra reserves. That makes it capital-efficient—even if it’s not technically a top-tier liquid asset.

Paper gold, on the other hand—things like ETFs, futures, and other financial contracts—requires an 85% capital buffer. That makes it far more expensive to hold and signals a clear regulatory preference for real, tangible reserves over financial derivatives.

As Oswin and Artigas of the World Gold Council noted in June 2025: “Gold is not currently classified as an HQLA under Basel III, but its performance during times of crisis rivals that of intermediate and long-term Treasuries.”

So if it’s not officially a top-tier asset, and it doesn’t pay interest, why are banks increasingly turning to physical gold?

The answer lies in what gold is—and what it isn’t. Treasuries depend on the U.S. government’s ability to repay. Paper gold depends on counterparties honoring contracts. Physical gold, held in a vault, carries no counterparty risk. Its value isn’t based on someone else’s promise. With Treasury auctions weakening and debt levels rising, that kind of certainty is increasingly rare. Banks are responding accordingly.

Paper gold, meanwhile, is highly leveraged. There are far more claims to gold than there is physical metal to satisfy them. This has allowed financial institutions to suppress prices through short-selling. But it also creates fragility: if investors lose confidence and demand delivery, the system could face serious dislocation. Basel III discourages this behavior by making paper gold capital-intensive to hold.

In contrast, physical gold now stands out as a rare safe haven—liquid, capital-efficient, and historically resilient in crisis. Like Treasuries, it carries a 0% risk weight. Unlike Treasuries, it isn’t backed by ballooning debt or political dysfunction. That has some observers wondering: could we see gold-backed Treasuries return?

It’s speculative—but increasingly plausible. Until 1971, the U.S. dollar was tied to gold. Some argue that linking Treasuries to gold could restore faith in debt markets. One of the most vocal advocates is Judy Shelton, a former Trump economic advisor and past nominee to the Federal Reserve Board. Though her 2020 nomination was blocked, Shelton remains influential in conservative circles and is sometimes mentioned as a potential future Fed Chair.

Shelton envisions a modernized gold standard—one that ties public borrowing to a real asset, reducing inflation risk and restoring trust. While her views remain outside the mainstream, they reflect growing unease with the trajectory of fiat money.

Whether or not gold regains official HQLA status may ultimately be irrelevant. In theory, regulatory classifications matter. But in practice, trust matters more. When confidence breaks, labels lose meaning. And in that kind of world, physical gold shines precisely because its value doesn’t depend on central banks, governments, or anyone else.

As of July 1, 2025, the Basel III Endgame is live. While headlines fixate on Musk’s tweets and Trump’s jabs, the deeper story is this: both Tesla and the financial system that props it up are built on fragile scaffolding. Musk’s empire—often celebrated as the apex of innovation—rests not on engineering brilliance but on cheap capital, generous subsidies, and artificially suppressed energy costs. Remove those supports, and the Jetsons future collapses into something far more Flintstonian.

The same holds true for AI, electric vehicles, and much of the digital economy. These are energy-hungry, debt-leveraged systems riding on assumptions of permanence that history rarely grants. Civilization doesn’t move forward in a straight line. It cycles. It resets. And when the price of energy spikes or the magic of debt wears off, everything gets repriced—fast.

That’s why the Basel III Endgame matters. It’s a quiet admission that the system has become brittle—bloated by leverage, hollowed by illusion. Gold’s resurgence isn’t nostalgia. It’s a return to something real in a world of increasingly virtual value.

Just as banks rediscover the strength of tangible reserves, the rest of us would do well to consider what holds real weight. In the end, the drama isn’t Musk versus Trump. It’s reality versus narrative.

And reality always wins.

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