When rumors of this started circulating a few days ago, I thought it was probably conspiracy-theory hysteria. But it now appears more likely that the fedgov (and specifically the Dodd-Frank bill) has made over-the-counter trading in precious metals illegal for Americans
I don’t know the implications of this. I don’t think anybody does, at this point, but this sort of trading is seriously over my poor hermitty head. The restrictions do not apply to physical buying or holding of gold or silver, though. We the Free and the Brave are still “allowed” to do that.
I hope that -S and other knowledgeable folks will spread some enlightenment in the comment section.
A few thoughts:
How can everybody just take it for granted these days that Congress regularly passes laws that nobody understands — then shake their heads and go about their business when their consequences turn out to be so … well, unAmerican? The law: it’s beneath us all.
In the short term, this might push metals priced down as speculators are forced to liquidate — again. In the long run? Owning the physical stuff looks more and more important. Even if you can own only a few rolls of junk silver coins — own them.
The next move toward currency controls should be … interesting.
So, the simple answer is, don’t trade over the counter. It is the normal effect of laws like this is to stimulate a succesful and profitiable black market. Gold can stil be found in the wild, just takes a lot of work and some know how.
From what I read on Zero Hedge, this won’t apply to **all** Americans…just those with an income under $200k or net worth under $1M.
The excepted ones can get special status as “accredited investors” to continue such trading. This regulation therefore seems designed to hurt and exclude small retail traders and jewelry makers.
http://www.zerohedge.com/article/trading-over-counter-gold-and-silver-be-illegal-beginning-july-15
Sounds like a new form of market manipulation to me. But then I’m just a dumb peon.
And yes, keep stacking the phyz if you can. If prices tank for a while, supply is likely to become extremely tight.
Matt, sorry but I think you’re missing the big picture.
I doubt that most people here have ever traded on the Forex, or done any form of arcane metals speculation. If we’ve bought gold and silver at all, we’ve made physical purchases from small dealers or acquaintances — “in the wild” as you put it. Indeed, if the fedgov suddenly outlawed every form of purchasing and owning metals — we’d go right on buying and possessing them.
But surprise laws and regulation in general and limitations on financial freedoms in particular still affect us all.
I’m definitely focusing this blog away from being reactive to every announcement of Bad Government Sh*t. But if true, this latest move is something freedomistas need to watch carefully.
Beth — from one dumb peon to another, thank you. The ZeroHedge piece is definitely worth the read. Wonder how this will affect those small retail traders many of us buy from?
On Beth’s linked article, the comment by robobob gets to the crux of the matter:
I guess it’s a good thing I buy mine mail order.
From what I’ve seen over the years, any occurrence of “Forex” is likely to be an Internet scam, kind of like Nigerian banks.
Think derivatives, not physical metal by the mere tonne. The multi-million-dollar paper doings.
Desertrat has it right. The rule specifically does _not_ cover any transaction which involves taking physical posession of actual gold or silver within 28 days of paying for it. In other words, the sorts of transactions in gold or silver that preppers are likely to be making. This is about buying pseudo-gold and pseudo-silver on a commodities exchange through a broker, who holds on your behalf a piece of electronic pseudo-paper that theoretically entitles you, at some point, to collect the real thing.
High finance wall-street stuff, nothing really to do with main-street.
If you still have an IRA and were hoping to invest it in gold, you’re about to be out of luck. Otherwise, this isn’t going to affect anyone who reads this site.
“… nothing really to do with main-street.”
Right. And we don’t have to worry about an income tax because it’ll only apply to the rich. And when they came for the Jews …
“… this isn’t going to affect anyone who reads this site.”
Not in the short term. I agree. Nor do I envision the fedgov making gold or silver possession illegal tomorrow or anything like that.
I have no idea of the immediate or mid-term ramifications of forbidding Americans (other than those rich enough to join the club) to trade in certain types of metals-related paper. But anyone who doesn’t view the gradual clamp-down on Americans’ financial activities — and this new focus on metals — as ominous … well, you’re looking toward a sunny future indeed. Hope it turns out that way.
I don’t know what is going on behind this, but one idea is that it is the first step to doing what they did back in the 1930’s, ban gold ownership. Today they could not get away with an out right ban, so they start with small steps…to “Protect” investors.
Add in from all i’ve read, that the law is not fully clear on what is being “banned”. (A law not clear? That would never happen.)
DrillSgtK — I think your take on it is likely to be spot on. Here, everybody (okay, everybody naive) thought Dodd-Frank was to protect us against the EEEEvil Bankers. But no sooner does it take effect than we’re stuck with provisions (intended or otherwise) to “protect” us from ourselves.
And yeah. Unclear laws. Whoddathunkit?
I have no idea why Dodd-Frank outlaws speculation against PMs in Forex (FX) markets; some of the discussions seem to indicate that the CFTC is being overly aggressive in their interpretation of the new law.
One cynical but all too believable speculation is that this shuts down competition to COMEX, where gold and silver futures are traded. The amount of money required to trade PM contracts via Forex is much smaller, and the leverage allowed in the Forex markets much larger. This made it more attractive for small players.
Comex has been raising margin requirements very rapidly of late, particularly on silver. Now they don’t need to worry about driving potential investors away – they have nowhere to go.
I’ve always believed FX to be a fool’s game for small fry; these waters are deep and there are some very large sharks. Consider this recent statement from the Federal Reserve:
“The U.S. monetary authorities intervened in the foreign exchange markets on one occasion during the first quarter, on March 18, buying $1 billion against Japanese yen, the Federal Reserve Bank of New York said today in its quarterly report to the U.S. Congress.
“During the three months that ended March 31, the dollar depreciated 5.5 percent against the euro but appreciated 2.5 percent against the Japanese yen. In this period, the dollar’s trade-weighted exchange value depreciated 3.7 percent as measured by the Federal Reserve Board’s major currencies index.”
So if you had the foresight to predict that the dollar would appreciate against the yen and took out a 100:1 leveraged trade on that basis, the Fed and other central banks stepped in and very possibly wiped you out.
I don’t like the odds, the rules, or the other players, so I don’t play.
In the bigger picture, this is just another example of the increasing restrictions on individuals getting their capital out of US dollars. It’s becoming very difficult for US citizens to open foreign bank accounts. Capital controls become draconian as countries go bankrupt, ours will be no exception.
Robobobs comments are right on the mark. I’m not completely certain that the new law really says what Forex.com claims. But the language is so convoluted, and the penalties so harsh, that Forex.com decided it was wiser to stop all PM trades for US citizens.
That scenario is being played out literally thousands of times each day all across the world. Entrepreneurs with good ideas and capital run into a buzz saw of laws and regulations, which at least are written down, and policies and procedures, which get made up on the spot. Wise people elect not to take the risk, make the investment, and possibly create new jobs.
It’s easier, and safer, to sit on the sidelines and watch the awful trainwreck progress. So if the entrepreneurs are overseas they don’t offer their new products or services to Americans. If the entrepreneur is in the US, they don’t open the business at all.
The ever-increasing opaque laws are slowly strangling us. Or maybe not so slowly any more. We are all poorer because of this, even if those who never dreamed of trading PMs on Forex.
“But anyone who doesn’t view the gradual clamp-down on Americans’ financial activities — and this new focus on metals — as ominous … well, you’re looking toward a sunny future indeed.”
Well, I suppose that’s one way to look at it. Another would be that I know that this sort of thing has been pretty continually screwed-around-with since my grandmother was prepubescent, and thus am not particularly shocked by yet another round of new regulations that don’t actually affect me, anyone I know, or anyone I’m likely to know.
If I had my savings invested in gold contracts, I’d be worried right now. I don’t. I tend to assume (on the basis of a fair amount of historical evidence) that, if I ever need to rely on gold, it’ll be because either the institutions to enforce contracts have broken down (in any of the various realistic disasters for which “OMG ZOMBIES!!!” is a convenient shorthand), or the state has done yet another fool thing and tried banning private gold again. In the former case, a gold contract is effectively toilet paper, and in the latter, it’s likely to be actually illegal to have one. Either way, not much use to me. Whereas gold in my own posession…well, that’s a different kettle of fish.
I’m certainly not arguing that it’s a good thing. It isn’t. New laws are almost never an improvement, and new regulations absolutely never. And the investor class is as entitled to liberty as anybody else, and more put-upon lately than most.
Lawmakers being asses is not precisely news. I was just trying to point out that (thanks to the weird way that the financial industry and its regulators use words like “retail” and “contract”) this new thing didn’t mean what some people appeared to be thinking it meant.
-S — Thank you hugely for the reality check. I always trust your views on these things and feel privileged to have you around.
Matt — “Lawmakers being asses is not precisely news. I was just trying to point out that (thanks to the weird way that the financial industry and its regulators use words like “retail” and “contract”) this new thing didn’t mean what some people appeared to be thinking it meant.” I agree and wave the white flag of truce. I was kinda grouchy yesterday and I apologize.
Looking at the Wikipedia definition: http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29
Silver analyst Ted Butler has commented that these trades should never have been allowed to begin with. Possibly, such trades are part of JP Morgue’s ability to manipulate the precious metals market–and GATA has been screaming about that for years and years. That’s beyond my understanding, but by and large I usually go along with the ideas of such as GATA and Butler.
Back to clutching and glowering. 🙂