Before moving on into the topic of how the Volcker rule affects the precious metal industry, it is crucial that the Volcker rule itself be understood first. The Volcker rule is basically a reformation act that restricts the banks in the United States from taking high risk investments, especially high risk investments that do not benefit the customers of the bank. In view of the major scandals involving banks using people’s money to make short term gains that saw profit flow into the banks but not to the customers, but when things go wrong, the customers bear the burden of the loss.
In other words banks are prohibited from investing in short term or long term hedge funds, speculative markets that are highly risky and it also prevents banks from investing in the precious metals industry (gold bullion / silver bullion). Banks are currently actually looking for loopholes in the legislation rather than comply to it, but according to the legislators the loopholes do not exist. How this would affect the precious metal industry is multi tiered, as some analyst say that banks are the biggest buyers and sellers in the precious metal commodity trade industry and that they are the main ‘market forces’ applied through hedge fund managers and their absence would create a huge void in demand and drive prices down. On the other hand there are those who believe that the absence of these speculative strong forces would provide stability to the prices of gold as most of the trading done by these market forces are for short term gains and in retrospect most of the gold bought by them are never held fopr more than a few days.
Looking into the average investor who looks towards the shiny yellow metal as a safe haven to secure wealth, the absence of these speculative forces will actually bring about the true essence of the gold value and allow the average investor to sleep peacefully knowing that there are no hedge fund managers trying to manipulate the gold market prices. Many have applauded this move, especially the savers, as many have seen what has happened in recent years to big financial institutions that were financially ruined and in the process ruined many other lives of individuals who had trusted these financial institutions to keep their life saving safe.
The reformation brought about by the Volcker rule is expected to bring confidence back into the precious metal industry as smaller investors will no longer have to contend with big players who use other people’s money to fill their coffers. Nevertheless, prior to this there have been numerous other ‘so called’ rules that were supposedly supposed to protect the small people, however in light of what transpired during the global financial meltdown and other similar situations, how long this rule lasts before it is overwhelmed or manipulated by the powers that be would not be long, and those who want to place themselves within the safe zone amidst a financial crisis would typically be the ‘Average Joe’ with a fistful of gold.