Gold trading can be an integral component of a well-diversified portfolio, offering diversification and protection against market downturns. Investors have access to various gold investment vehicles ranging from ETFs and mutual funds to raw bullion like bars and coins.
Physical precious metal sales fall outside the purview of Securities and Exchange Commission regulations, instead coming under state departments responsible for monitoring businesses.
The IRS regulates the gold market by creating and administering rules governing investments in precious metals. Their rules are based on both domestic and international laws and policies. Furthermore, the IRS administers public tax benefits like Earned Income Tax Credit and Child Tax Credit available to everyone.
Physical bullion trading differs significantly from paper-based financial instruments like securities in that it is governed by English property law and codes of practice laid out by the London Bullion Market Association (LBMA). BullionVault, one of the UK’s premier digital bullion dealers, also adheres to English property laws.
Federally, registered investment advisors cannot employ some marketing tactics such as testimonials and endorsements in their marketing materials. While the Commodity Futures Trading Commission only oversees commodities trading, state departments that regulate businesses such as Santa Monica’s have taken the lead in monitoring precious metal dealers for fraud. Furthermore, US Department of Agriculture, Bureau of Land Management, and Environmental Protection Agency all take an interest in managing mining regulations for gold related activities.
The Commodity Futures Trading Commission
The Commodity Futures Trading Commission regulates commodities futures and options markets by encouraging fair, competitive, and financially sound trading. It works to protect the public from fraudulent or abusive practices within these markets through regulations, guidelines and public education.
CFTC regulations also ensure that regulated entities provide retail customers with sufficient disclosure statements to enable informed use of commodity derivatives transactions, and to educate investors regarding their associated risks.
Gold bullion differs from paper-based securities by being a physical commodity and thus falls outside the purview of the SEC, instead being regulated by traditional English property law and codes of practice from London Bullion Market Association. Unfortunately, however, most precious metal sellers remain self-regulated via state and local laws, often using celebrity endorsements and testimonials to advertise their products while many even misuse this freedom to sell conflict gold.
The London Bullion Market Association
Though not an exchange, the London Bullion Market Association oversees global over-the-counter bullion trading and sets its London Gold and Silver Fixes. Regulated by UK’s Financial Conduct Authority – responsible for market integrity and consumer protection.
LBMA’s primary mission is to advance the interests of its members and the London bullion market, as well as establish close ties between itself and the Bank of England – who play an essential role in monitoring market activity – and them.
The London Bullion Market Association membership consists of Full Members – such as banks and investment dealers that buy or sell physical bullion for customers – as well as Market Makers who quote bid and offer prices throughout the day for spot and forward contracts, at agreed times throughout the day. They must offer this service for one, two or all three products available through LBMA: spot contracts, options contracts and forwards contracts. Market Makers are dual regulated for prudential matters by both LBMA’s Prudential Regulation Authority as well as conduct and regulatory issues by FCA.
The World Gold Council
The World Gold Council is a trade association dedicated to the gold industry. It sponsors research into new uses for gold and co-sponsors products that contain it; additionally it advocates for consumption with an aim of maximising global demand. Operating out of offices in Shanghai, Beijing, and Mumbai it is funded through member dues from major mining companies as well as income from commercial investment products it has launched or co-launched.
The WGC’s activities in the UK are overseen by the Financial Services Authority (FSA), an oversight body responsible for overseeing investment products and firms offering financial markets services. However, its purview does not extend to physical gold sales which are overseen by London Bullion Market Association regulations which mandate members possess sufficient high-quality liquid assets (HQLA) that cover their liquidity risk profile for at least one month under stress scenarios; this ratio is known as Liquidity Coverage Ratio.