Who Regulates Gold Trading?
Gold trading is subject to numerous stringent regulations and licensing requirements that aim to combat fraud while maintaining transparent commodity transactions. For example, in the USA ETFs tracking gold are subject to regulations from the Securities and Exchange Commission (SEC).
To trade profitably in the gold market, it’s crucial to understand how three main polarities influence price action. Doing so will allow you to avoid hidden pitfalls that could sap your profits.
The Commodity Futures Trading Commission (CFTC)
The Commodity Futures Trading Commission (CFTC) is an independent Federal agency responsible for overseeing trading activity on futures markets. Appointed by the President and confirmed by the Senate, its five commissioners serve for staggered terms of five years to avoid partisanship and provide balance within their oversight responsibilities.
The agency’s Division of Enforcement investigates and prosecutes violations of the Commodity Exchange Act. Additionally, it offers expert assistance to U.S. Attorneys’ Offices and international authorities conducting commodity fraud investigations.
Physical precious metal sales are overseen by the Commodity Futures Trading Commission (CFTC), yet do not come under the purview of the Securities and Exchange Commission or Securities Investor Protection Corporation (SIPC). Therefore, purchasing gold comes with inherent risks that must be understood prior to purchase as these transactions can often turn fraudulent.
The Securities and Exchange Commission (SEC)
The SEC is a federal agency charged with overseeing securities markets and protecting investor assets. Its powers are defined in 15 U.S.C 78d, while its commissioners are appointed by the President with Senate advice and consent. To maintain impartiality within its ranks, Congress requires no more than three of the five SEC commissioners from belonging to any one political party.
Since gold is traded globally, the SEC must address various regulations that vary between countries. Mining companies must abide by environmental laws as well as trading rules; any one of which could complicate operations or increase time spent gaining approvals; therefore it’s crucial that businesses stay up-to-date with regulatory updates.
The Internal Revenue Service (IRS)
Gold traders in the United States engage in futures contracts and over-the-counter markets. Their main aim is to generate returns by purchasing low prices when available and selling when prices go higher, while using gold as a hedge against inflation or safe haven during times of political and economic upheaval.
The IRS strives to keep its rules transparent. To do this, they publish temporary and final regulations in documents known as Treasury Decisions with explanatory preambles that can be found online.
Investors seeking safety from volatile stock markets are turning increasingly to physical gold as an alternative investment asset class. Unfortunately, due to lack of regulatory oversight there has been an unregulated marketplace filled with boiler rooms and scams; buyers also incur storage fees without earning a yield, making the prospect less appealing for investors who prefer safer options such as cash or mutual funds.
The Financial Industry Regulatory Authority (FINRA)
FINRA is an independent nongovernmental organization responsible for writing and enforcing rules governing broker-dealer firms, administering qualifying exams for securities professionals to take, as well as offering resources designed to protect investors.
However, like other self-regulatory agencies, FINRA has come under scrutiny for not doing enough to safeguard individual investors. Critics, including U.S. Senator Elizabeth Warren have advocated for increased oversight on brokers engaging in unethical practices.
For instance, the CFTC recently took action against Safeguard Metals for defrauding hundreds of investors out of over $67 million through hidden fees and markups. They obtained customers by advertising on conservative political radio shows featuring Sean Hannity and Mark Levin.
The London Bullion Market Association (LBMA)
The London Bullion Market Association (LBMA) is an international trade association for over-the-counter bullion markets. Comprised of 140 members such as large international banks, leading precious metal refiners and trusted gold dealers like [site_name], it regulates this segment by monitoring trading, encouraging good practices, setting refining standards, creating standard documentations and more.
Physical gold sales are overseen by the London Bullion Market Association (LBMA) and other trade associations, while futures and options trading fall under federal and state jurisdiction. Unfortunately, it’s difficult to ascertain who oversees LBMA members given that this group does not publish its trade data or meeting minutes.
Though LBMA plays an essential role in regulating the bullion market, its role has come under scrutiny due to failures on its part to take swift and decisive action against numerous banks fined for price fixing and subsequent crimes committed by their members. Furthermore, members have continued being members even after they have been found guilty.
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