We’ve received numerous user comments and emails concerning the new Dodd-Frank Wall Street Reform and Consumer Protection Act regulations that are scheduled to take effect on July 15, 2011.
Several investment and brokerage firms have alerted their customers that they will no longer be offering certain precious metals products, and all positions in those products will be liquidated at the close of business on July 15:
We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.
In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.
While the legislation aims to make it more difficult for certain types of precious metals products to be traded, physical exchanges of bullion, coins and other physical gold/silver products will not be affected.
If, for example, you purchase your precious metals from an online retailer or brick & mortar dealer, you will still be able to do so after July 15, 2011.
From what we gather, the legislation restricts products that utilize leverage and do not deliver said precious metal within a 28 day time frame:
The prohibition of Section 742(a) does not apply, however, if such a transaction results in actual delivery within 28 days, or creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver, and accept delivery of, the commodity in connection with their lines of business.
The rule changes are designed to only regulate futures markets, where delivery issues may arise. And, since this is the dominion of the CFTC, which is responsible for implementing and regulating these rules, it makes sense that there will very little, if any, effect on the actual physical market. Numismaster provides some additional information on this:
The report is not exactly accurate when it comes to gold, silver or platinum purchases in small or non-regulated sizes (such as 1 ounce bars, U.S. Mint bullion coins in any quantity, or any contract that is not approved by the Commodity Futures Trading Commission), and just plain wrong if the metals (or coins containing them) do not have their delivery deferred.
Deferred delivery generally means that the coins (or metal) is not delivered to a buyer within 28 days; or as Section 742 of the Dodd-Frank law provides, exempted is any “contract of sale that – ‘‘(aa) results in actual delivery within 28 days or such other longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets.”
As to the amount of precious metal that can be regulated by the CFTC, the general rule is that only bulk silver and gold coins under a standard contract are covered.
So coin shops, most dealers and nearly all collectors simply aren’t affected – nor were they intended to be. The CFTC, after all, regulates “Futures Trading,” and so long as there is reasonably prompt delivery, consumers appear to be protected. There may be regulation if delivery is deferred.
How these rule changes will affect gold commodity exchange traded funds (ETFs) and pool accounts (e.g. Kitco silver/gold pool) remains to be seen.
ETFs, since they trade on stock market exchanges, should be fine, though it is unclear exactly what, if any, changes may need to be made to these types of products.
An email from SHTFplan.com to Kitco.com, one of the largest precious metals pool account managers, which requested information on how these regulations would affect US based customers was not answered.
Since most of our readers deal directly with physical precious metals for the purpose of wealth preservation and emergency preparedness, as opposed to paper trading of PM’s, you should see no negative impact on your ability to accumulate or liquidate your gold or silver.
The long-term implications of these rules and how they affect the trading and price of precious metals instruments remains to be seen.