US NATIONAL DEBT

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The Volcker Rule – Good for Gold

December 12, 2013

NEW YORK (December 12, 2013) – Jeffrey Nichols, Senior Economic Advisor to RoslandCapital.com had the following comments on the current gold-market situation and outlook: 

A number of bearish forces have contributed to the downward trend in gold price during the past couple of years.  One important, but not generally recognized, factor has been the large-scale proprietary trading activities of a handful of bullion-dealing banks in both futures markets and over-the-counter markets. 

Now, with the recent approval of the Volcker Rule by the U.S. financial regulatory agencies, U.S. banks are prohibited from engaging in speculative trading activities – that is, acquiring or taking positions as principal for the bank’s own account any security, derivative, option, or contract for the sale of a commodity for future delivery for the purpose of selling the security or position in the near term or otherwise with the intent to resell in order to profit from short-term price movements. 

This means that U.S. banks are now prohibited from trading gold – including forward, futures, and options contracts – except on behalf of customers and not for their own short-term speculative gains. 

We should not under-estimate the influence of this trading activity – both up and down – on gold prices during the past few years.  Known by a variety of names – program trading, high-frequency trading, momentum trading, and algorithmic trading – the intent is often manipulative with large strategically timed selling, at key chart points, intended to beget more selling and the opportunity for these players to close out positions soon thereafter with attractive trading profits. 

When prices are trending lower, as they have during the past year and a half, this selling exaggerates the downward trend – and contributes to prices falling beneath their fundamental equilibrium level.  And, when prices are in a rising phase, large-scale buying at key chart points, exaggerates the bullish trend as it did in the 2011 run up to gold’s all-time high near $1,924 an ounce. 

But now the jig is up. With the advent of the Volcker Rule and an end to proprietary trading by the big banks, gold’s underlying bullish supply/demand fundamentals should matter more.

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver coins, platinum, palladium, and other precious metals. Rosland also helps people who wish to protect their wealth by including a gold or precious metal-backed IRA in their asset portfolio. Click here for more information.

About Jeffrey Nichols

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.