Effects of the Volcker Rule upon Gold and Silver Prices

The Volcker rule was devised after the fall of major financial institutions in the US that saw many savers lose their life savings from a large reckless corporation that traded the public’s money in high-risk markets for short-term gains. The previous president Barack Obama publicly endorsed the Volcker rule in January 2010. The rule stipulates that banks and monetary institutions that own banks are strictly prohibited from getting involved in propriety trading that does not benefit their customers. 

The rule also states that these institutions, banks or organizations that have financial ties with banks are not allowed to own or invest for that matter in hedge funds and private equity funds. To top it off the legislature also strictly restricts the liabilities that a bank is allowed to own. The amendment which was brought about with the introduction of the Dodd – Frank financial reform was passed by the United States Senate in May 2010. The reform also restricts these institutions from investing or indulging into the precious metal market.

The prohibition is seen by many in 2 diverse perspectives as Jeffry Nichols sees it the fact that banks are known for ‘high-frequency trading’ which are manipulative in nature due to their ‘large scale selling’ that is timed – which basically rips off average non-suspecting traders and those who are not in their ‘loop’. According to him if this stops, the prices of gold and silver in the market will return to their basic fundamentals providing a clearer view of the precious metal market in contrast to what it was before.

On the other hand according to Scott Carter who is the CEO of Lear capital, the Volcker rule may give a clearer and more transparent views to the general public of the ‘goings – on’ in these financial institutions it would dampen the precious metal market and short-term gains may not be viable through precious metal trading which comes as good news to those who invest for long term purposes. Taking a bigger picture of the entire scenario, no matter how one looks at it, the fact still remains the same, gold is a good long-term investment due to the fact that when all else fails, gold will shine as other markets rise and fall, and the value of currencies have been on a steady decline in buying power for almost a 100 years, the value of gold is still undeterred and currently many economists are expecting the price of the shiny yellow metal to rise slowly but surely.

However the truth is that with the current Trump administration that is seemingly turning everything topsy-turvy with even suggestions of dropping the Volcker rule on the table as indicated in the financial times with the heading “Drop the Volcker rule and keep what works - Proprietary trading is hard to identify and did not cause the crisis” nothing can be ascertained as a complete probability even as regulations are seemingly dangled up in the air and the pickings are based on ‘may the strong survive’ and if there is one thing that they cannot pull the rug from under is the intrinsic value of gold which will definitely prevail regardless of what rules they topple or up-hold.

While the common view during the GFC period was one of the banks being somewhat out of control and obsessed with personal interests rather than focusing on their customers benefits, when it comes to the Volcker rule's effect upon the precious metals market it seems it has done little to nothing to stop attempts at gold price fixing, a problem whereby the gold value has been often considered extremely and fraudulently undervalued for the past decade.