In just a few days some fairly big changes in the commodities and currency trading markets are expected to land with a thud. The changes stem from the Dodd-Frank Wall Street Reform and Consumer Protection Act aimed primarily at consumer lending, but is also having a wide ranging impact on securities trading.
Some of the changes are fairly straightforward and are intended to curb speculation that comes at the expense of consumers. Others are aimed at curbing the excesses of the largely unregulated derivatives market. Most of those changes will generally be good for consumers, all were well-intended but, like anything the government does, the implementation is liable to be rocky.
For precious metals traders the changes are fairly clear. As of July 15, clients will no longer be able to trade precious metals on margin accounts. Well, you can, but only on a 1:1 non-leveraged basis. There are exceptions if you can prove you’re fabulously wealthy or otherwise able to cover all your open positions within 28 days. Otherwise you will have to maintain sufficient margin to cover all of your open metals positions at all times or be subject to margin calls.
The new rules will in no way impact your ability to buy and own gold, so the upshot will likely be many investors will do what they really should have been doing all along and take delivery of physical gold. Options and derivatives in precious metals added volatility to the market price without adding value and, for most serious gold buyers, this will be a positive change. The advantage to owning gold is the physical possession.
Crude oil prices will also benefit, but like any time you kick over the trough, the hogs are going start complaining. Derivatives traders and oil speculators are already crying foul but, since it’s a somewhat exclusive and unregulated market, there’s not a lot of complaining outside that small group. Even at that, the government is looking at exemptions for companies that make less than 30 percent of their revenue from derivatives, so it’s not going to end the business by any stretch.
What concerns me is the vitriol and push back any time the government tries to give consumers a break or add transparency to the derivatives market. Enough already. As long as you’re buying physical gold the new rules won’t effect you at all, except you may notice less price volatility.
Next week I’m going to go through a refresher on options for buying physical gold and silver and how to shop for the best deals so you don’t get ripped off.
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