Warning: Silver and Gold Trading Getting Banned


Many have probably seen headlines racing through the internet to the effect of “Gold and Silver Trading Could Be Made Illegal on July 15th”. There have been very heated arguments about exactly what the impact will be on the precious metals industry and traders as a whole.

My approach to the bill has been somewhat different than most. First, I own a precious metals company that uses hedging in its business model and therefore I am directly affected. So does this bill actually outlaw the trading of silver and gold? In some senses, this is the case.

First, the bill only affects derivative or non-backed trading of silver and gold. So first we must make a distinction between backed and non-backed trading instruments. All derivative trading is affected. So this means all trading instruments that claim to be backed will in no way be affected by the bill.

I also want to be very clear that this does not impact investors buying physical gold more silver. The bill essentially requires a retail buyer to take physical possession of the metals that they trade in futures contracts.

As most of you know most futures contracts are never actually delivered. Consequently, most traders will never consider this route. There is one major exception to this rule. If you and your wife or in this case my company has a net worth (minus personal residence) of over $1 million then you are exempt from this section of the law. This was the lifesaver for my company and its partners. So what are the impacts of this on precious metals long-term?

The answer is two-fold. First, in the short-term I think silver is likely to fall before, on, and shortly after July 15th. According to the bill, all position that have not been liquidated by that time by retail traders who do not meat the specifications will be automatically liquidated.

Consequently, there should be a fairly large sell of over the next couple of weeks and a fall in price as well. It will be particularly interesting to watch happens on July 15th at 5:00 PM when all position that have not been liquidated will be forced to do so.

The second impact I think is positive for the metals. Why is this the case? The 30% correction we saw this year in silver was primarily due to traders who used extensive margin in their trading and were forced to sell due to raised margins requirements.

With non-backed trading instruments being limited to large commercial entities, at least some of the volatility will be minimized by not allowing as much speculation and steady growth will be more possible. This is not to say volatility will cease, but that it should decrease as a result of the new law.

One final impact of this law is that it will reduce the number of new entries into the precious metals industry simply do to the high cost of being able to hedge their positions.

If silver and gold prices do take a hit, what should you do? See both as a buying opportunity. Read ourgold price correction and silver price correction guides for more information.

Warning: Silver and Gold Trading Getting Banned is a post from Live Silver Prices.

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