Who Regulates Gold Trading?

Precious metals trading is an international market encompassing mining, dealers, banks and exchanges. This sector is subject to various laws from environmental protection standards to financial oversight regulations.

Investors have the option to either acquire physical gold bullion in the form of bars and coins, or trade it on the market. While regulation governs these transactions, playing conditions may still vary across transactions.


Gold trading does not fall under one global regulator; however, local authorities and voluntary codes provide some oversight. The London Bullion Market Association sets the price twice daily through their “Gold Fix.” Gold is also traded on Comex exchange and through futures contracts on New York Mercantile Exchange which are governed by CFTC regulation.

Mining precious metals has both positive and negative ramifications on humans and the environment, including economic development, employment and environmental restoration; while negative side-effects could include disruptions of traditional practices or changes to land use patterns.

Checking whether a dealer is licensed is essential, since some operate as unlicensed “legal dark rooms”, charging undisclosed markups on sales. Goldline International sponsored Glenn Beck’s conservative talk show in 2000s; city prosecutors later sued them for deceiving customers with undisclosed markups which cost them over $185 million in losses.


Gold has long been seen as a safe haven asset that can offer investors protection during times of economic turbulence. Investors can purchase gold through ETFs and mutual funds as well as physical bullion like bars and coins; however, concerns have been expressed over its regulatory oversight.

Due to lack of regulation, gold trading has become an industry prone to boiler rooms and scams. Furthermore, dealers do not enjoy the same protections offered to securities firms and must rely on voluntary codes in order to reduce fraud risk.

Dealers frequently employ the maxim “Buy the rumor, sell the news” to lure investors into riskier investments and increase profits through over-the-counter (OTC) trading – less regulated than exchange-based trades – which allows dealers to leverage margin accounts. According to SEC allegations against Los Angeles-based precious metals dealer Safeguard’s use of this strategy against elderly investors for fraud purposes totalling more than $67 Million, Safeguard used these tactics against these elderly investors and defrauded them out of more than $67 Million dollars!


Banks have traditionally been an invaluable source of gold trading liquidity. But recent regulations imposing higher capital requirements for banks that hold significant quantities of physical bullion have caused many central banks to increase their own holdings of physical gold, thus driving prices higher (see Chart 1).

Under the new rules, banks will need to distinguish between allocated and unallocated gold accounts. Allocated accounts represent physical metal held in vaults belonging to clients while unallocated gold accounts represent financial transactions such as lending, swaps and futures contracts for producers and refiners. Allocated gold will maintain zero risk weighting while unallocated accounts will be subject to an 85% RSF ratio similar to other high-risk assets.

This new regulation won’t affect LBMA members directly, but major banks worldwide are already being affected by higher Basel III capital requirements. Many have advised their clients to open allocated gold accounts instead of unallocated ones – further increasing demand and supporting prices.


Wholesale gold trading is regulated in several ways. London over-the-counter market transactions are set by an ICE Benchmark Administration (IBA) process involving multiple banks and an internal and external chair; US futures exchanges are overseen by Commodity Futures Trading Commission while there are also secondary markets like Shanghai Gold Exchange where significant trading occurs.

As new rules emerge to meet the challenges presented by an ever-evolving industry, gold mining and trade regulation may continue to expand in number and complexity. Investors should remember the old saying “Buy the rumor, sell the news” until that day comes; until then they should heed advice like that of Jim Rogers: ‘Buy rumors, sell news.”

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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