Who Regulates Gold Trading?
Gold trading is open and accessible to investors of all sizes. Traders can trade physical precious metals, CFDs and futures contracts. Demand and supply influence gold prices; with jewellery sales driving demand while mine production and central bank sales supply the supply.
London hosts two gold fixings every business day and its prices serve as a global standard.
The SEC
The Securities and Exchange Commission is one of the key players in overseeing capital and financial markets. Their triple mandate of investor protection, orderly markets maintenance and capital formation facilitation has propelled them into being one of the leading players across all areas of market regulation. Their standardized approach gives everyone timely access to information and data.
Precious metals dealers face several regulatory requirements, such as disclosing fees and markups. Furthermore, buying from unregistered dealers could violate federal law; you can submit a tip to the CFTC if any fraudulent activities come to light.
The Securities and Exchange Commission (SEC) consists of five commissioners appointed by the president, with one designated chair. To foster nonpartisanship, according to law no more than three SEC commissioners can belong to one political party. Furthermore, six divisions and 11 regional offices exist under its jurisdiction with its headquarters located in Washington DC.
The Commodity Futures Trading Commission
Gold has long been used as an economic hedge, serving as one of the oldest forms of currency on Earth and offering traders a hedge against economic uncertainty. Due to its intrinsic value and “safe haven” appeal, investing in gold requires careful risk management as its price can fluctuate in response to news or events.
The Commodity Futures Trading Commission regulates commodity futures and options markets through oversight, regulations and public education. Its Division of Enforcement investigates and prosecutes cases involving fraud, manipulation or other misconduct as well as overseeing its whistleblower program.
The Commodity Futures Trading Commission has brought several retail fraud actions against precious metals dealers, such as Goldline International of Santa Monica in 2020 who was sued by both the CFTC and 30 state attorneys general for defrauding customers. Furthermore, several lawsuits were also brought against foreign exchange trading firms which defrauded retail investors unless exempt. CPOs must register with the CFTC in order to abide by its rules regarding disclosure obligations as well as other obligations that fall under their purview.
State regulators
The world gold market is subject to a complex set of laws. Both its physical and financial components are subject to regulation by various agencies such as state regulators and the Commodity Futures Trading Commission (CFTC).
LBMA maintains “London Good Delivery Lists,” promotes refining standards, coordinates vaulting operations and develops standard documentation for the market. Furthermore, the LBMA facilitates trading through its clearing system while offering arbitration in cases of disputes that arise in relation to trading activities on its platform. Furthermore, they act as liaison between their market and regulatory agencies.
Due to limited regulations, sellers of precious metals enjoy great latitude in marketing their services. Celebrity endorsements and client testimonials often help spread word of these businesses to potential investors; older, politically conservative investors who worry about government actions on their retirement savings; advertising in conservative media outlets may also help spread word of these services; furthermore many companies can avoid VAT tax by selling products abroad – yet even with these advantages the gold trade remains risky business.
Private entities
As gold became an increasingly popular investment vehicle, speculators quickly began trading physical coins and bars as well as derivative instruments like futures and options on it. These new trading opportunities enable investors to either go “long” or “short” on it – predicting whether its price would rise or fall and potentially generating big profits along the way.
Physical gold sales are unregulated, giving precious metals sellers considerable freedom in marketing and advertising their products; some even pay to have advertisements featured on right-wing news outlets and radio hosts.
OTC markets differ significantly from exchange-traded assets by being less transparent and subject to credit counterparty risk, which puts participants at greater credit counterparty risk. Furthermore, participants may be trading for themselves (proprietary trading) or clients’ (brokerage). As a result, OTC market participants often exhibit lower liquidity than their exchange-based counterparts – though only the London Bullion Market Association (LBMA) maintains a fixed price for physical gold transactions.
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