Who Regulates Gold Trading?
Gold trading takes place across a range of markets worldwide and is subject to numerous laws and regulations designed to safeguard investors while also guaranteeing fair practices in trading gold.
In the USA, the Commodity Futures Trading Commission oversees trade on the New York Mercantile Exchange; however, bullion banks and other financial intermediaries may also be subject to regulation by individual state regulators.
Gold dealers operate within what can only be described as the legal grey zone, providing precious metals without incurring the same regulatory requirements that impact investment banks. Unfortunately, however, as highlighted by Safeguard Metals of Los Angeles who was accused of defrauding hundreds of elderly customers out of $67 Million through fraud schemes is evidence that this may not always be beneficial.
The London Bullion Market Association (LBMA) publishes two gold prices per day, including the London Gold Fix. This pricing system relies on supply and demand on futures markets where traders agree to buy or sell gold at certain future dates.
The LBMA engages in due diligence on gold purchases from mining sector, such as from artisanal and small-scale gold miners (ASGM), to ensure their gold does not contribute to funding armed groups, conflict, or human rights abuses, in line with OECD guidance on responsible sourcing in conflict-affected and high-risk areas.
Gold dealers who deal in gold are overseen by various government agencies in the USA, such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). These groups oversee licensing requirements in gold trade across the nation while also controlling prices of investments made with precious metals and providing traders with accurate information regarding them.
The London Bullion Market Association (LBMA) creates and publishes twice daily the global benchmark gold price through the ICE Benchmark Administration (IBA). Participating banks are dual regulated, meaning that their prudential concerns are overseen by Bank of England’s Prudential Regulation Authority while conduct, consumer protection and competition issues are overseen by Financial Conduct Authority.
LBMA clearing house membership is strictly limited to bullion banks with substantial wholesale precious metal business and sufficient capital. Current members include HSBC, JPMorgan Chase, Scotiabank, UBS and ICBC Standard.
United States gold markets are overseen by various federal and state regulatory agencies that aim to protect investors, prevent fraud, and ensure an open and fair trading experience for all participants. Of these agencies, Commodity Futures Trading Commission is the main federal body charged with overseeing gold trade.
Gold dealers benefit from limited regulations, enabling them to advertise their products using celebrity endorsements and client testimonials as well as conservative political radio shows hosted by Sean Hannity and Mark Levin. Alleged victims of Safeguard Metals in Los Angeles who claim they learned of them via media personalities such as Sean Hannity or Mark Levin have reported hearing about Safeguard Metals from such media personalities. This may have contributed to hundreds of elderly customers losing an estimated total of $67 Million when buying precious metals through them.
On the London bullion market, there are 14 market making members (dealers), including five that participate in its twice daily fixing. These dealers may purchase or sell on behalf of themselves or clients as orders come through.
Gold has long been considered an appealing investment option due to its reputation as a safe haven in times of economic instability. Investors can either store physical gold bars and coins or trade derivatives markets – it’s essential that investors understand all associated risks for each investment option before proceeding.
Some investors use gold as a store of value, while others invest in its price movements speculatively. Gold prices often increase when there is speculation of war; however, once war breaks out the price may drop significantly.
The US regulates its gold market through the Commodity Futures Trading Commission (CFTC). This regulator specializes in commodity futures, options and swaps as well as penalizing firms engaging in fraudulent activity within the metals industry. Furthermore, they oversee London’s LBMA market as well as having working relationships with state departments that oversee businesses – these departments can seek restraining orders against assets to stop sales from proceeding further.