Who Regulates Gold Trading?
Precious metals have long been perceived as secure investments, with prices typically increasing during times of global distress. Demand and supply play a vital role in shaping their price.
Investors purchasing physical gold may incur storage fees that reduce returns; this issue may not arise when trading futures contracts instead.
Commodity Futures Trading Commission
The Commodity Futures Trading Commission (CFTC), founded in 1974 as an independent federal regulatory agency, regulates commodity futures trading on both domestic and foreign exchanges through futures contracts. Their main function is protecting consumers against fraud, manipulation and abusive practices during this process.
The Division of Enforcement at the Commodity Futures Trading Commission is charged with investigating and prosecuting violations of both the Commodity Exchange Act and CFTC regulations, such as civil or criminal actions taken against financial institutions who break these laws, as well as investigating whistleblower allegations.
CFTC regulators are particularly concerned with the sale of physical precious metals, which are purchased by people looking to diversify their investments or protect their retirement savings against inflation. They have taken action against companies making false claims about their gold bullion reserves as well as companies advertising services to those with self-directed individual retirement accounts (SDIRAs). Often these firms target older investors concerned about government policies or potential economic recession.
Securities and Exchange Commission
Contrary to its counterpart, which exclusively oversees financial aspects of gold trading, the SEC works to protect investors from fraudulent and misleading investment activities related to precious metals. SEC rules regulate gold price-tracking exchange traded funds (ETFs) as well as individual precious metals mining shares.
Gold has long been a source of fascination for investors of all stripes. Central banks use physical gold reserves as a hedge against geopolitical tensions; individuals may purchase it as an asset-protection measure.
However, purchasing gold as bullion bars or coins involves significant storage and insurance costs as well as dealer markups that often exceed 10%. Furthermore, due to lack of regulatory oversight for raw bullion trading markets are susceptible to scams like the Santa Monica-based precious metals dealer Goldline International which had to pay $4.5 Million in fines after deceiving customers of their product.
National Futures Association
The National Futures Association is an industry trade group dedicated to upholding fairness, honesty and integrity in commodities markets. Their organization works to protect investors through education of traders on how to make sound investment decisions; investigating complaints made against members; providing guidance for market participants and organizing educational seminars.
Physical gold investments can be achieved via various channels, including ETFs and mutual funds. However, these investments may be susceptible to manipulation by scammers; thus it’s crucial that buyers purchase precious metals from sellers registered with the Commodity Futures Trading Commission (CFTC).
NFA registrations cover not only brokers, futures dealers, commodity pool operators, swap dealers and exchanges but also commodity trading advisors (CTAs). When investing in physical precious metals through an individual broker or CTA it’s essential that their NFA membership status be checked. If any firm or individual you encounter does not appear registered with them immediately submit a tip with the CFTC immediately.
State Attorney General
There are various exchange traded products (ETPs) and pools dedicated to precious metals – gold, silver, platinum and palladium – which track price movements, such as ETPs. The Securities and Exchange Commission regulates these investments.
Physical precious metal sales do not fall under the purview of the Commodity Futures Trading Commission and instead fall under state departments that oversee businesses. California’s statewide department, for instance, can petition courts for injunctions freezing firm assets or prohibiting sales altogether.
Slack regulation affords precious metals sellers much latitude in their marketing and advertising strategies, providing precious metal dealers with ample room for creativity in their approaches. Some gold dealers find success advertising on conservative talk radio shows; for instance, Los Angeles-based dealer TMTE Inc. which admitted guilt before the CFTC and 30 state attorney general lawsuits in 2020 for charging undisclosed markups to elderly investors also featured Glenn Beck as part of their advertising. This strategy targeted older, politically conservative investors concerned about government actions affecting their retirement savings savings plans.
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