The Volcker Rule, forbidding the largest U.S. banks from trading with their proprietary accounts, has just been approved and will take effect on April 1st, 2014. What impact will it have on the gold and silver markets?
According to Jeffrey Nichols of Nicholsongold.com in his most recent bulletin, the rule will have important implications because it forbids U.S. banks with federally- guaranteed deposits to do trading operations for their proprietary accounts. This means that U.S. banks, including Goldman Sachs and JP Morgan, will be forbidden from trading gold and silver for short-term speculative gains in their own accounts (futures and options). From now on, they will only be permitted to do so on behalf of their clients.
According to Nichols, the downward pressure on the gold and silver prices in the last year and a half comes in large part from huge proprietary account trading operations done by those banks, both on the regulated and non-regulated (OTC) markets. A great proportion of those dark pool operations happen without being noticed by most market observers and participants, or even by the regulating organisms.
Jeffrey Nichols tells us that we shouldn’t underestimate the impact those operations have on the price of gold and silver, either going up or going down. Their eventual absence will make room for gold and silver fundamentals to have much more impact on the price than in the past.
Even if the rule is only to be implemented on July 21, 2015, banks have to demonstrate their good faith and intention to abide by the new rule by regularly communicating to the regulating authorities any related information.