Maintaining Gold Reserves

D

DallasCowboysFan

Just Curious.....

When you deposit money into a checking account they are required to maintain 20 percent and then they lend out the other 80 percent.

A lot of precious metals brokers sell you a certificate of ownership for an ounce of gold or silver and 'they'll hold it for you'.

Is there any law that requires them to have the specific number of ounces on hand that they are selling?

I have always thought that they would sell as many certificates as they could print as well as make their money off the premium over the spot price.

Are they required to physically maintain every ounce they sell?
Can they sell more than they own while maintaining Reserves like it is done with fractional lending for cash deposits?
Can they sell as many certificates as they can print...100 , 200 certificates for each ounce?

Thanks,

Raymond
 
Don't know, but my guess would be that they are middle man and hedge your trade with futures. I seriously doubt they do anything in physical gold. They just scalp the client...
 
JackRab said:
Don't know, but my guess would be that they are middle man and hedge your trade with futures. I seriously doubt they do anything in physical gold. They just scalp the client...
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I agree. But I was wondering if there are any regulations regarding the certificates they sell and the number of ounces they have to have on hand. I bet 99 percent of the people just buy and sell the metals without ever taking physical ownership.

But what if there was a major spike in metals prices and the owners ( even 10 %) demanded their gold/silver. The dealer would have to provide them with gold at the current price which would be much higher than the price which was initially promised.

I am thinking of an event where the price goes us 5-10-25 dollars a day as a reaction to a political event or a financial crisis.

They would never be able to cover their obligations. I was wondering if there were any laws that cover this. I am assuming no, because they are not financial institutions and they don't sell securities so they don't have to be registered with the SEC.

I doubt a regulation exists but I thought I would ask some of the experts here.
 
Well, they would if they hedged, which they do I assume. If they can't deliver the actual gold they will say we return current spot price. Are there any disclaimers like that on their websites?

Which gold broker are you looking at if I may ask?
 
JackRab said:
Well, they would if they hedged, which they do I assume. If they can't deliver the actual gold they will say we return current spot price. Are there any disclaimers like that on their websites?

Which gold broker are you looking at if I may ask?
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Actually none....lol

But gold has been in decline lately and then I started thinking about circumstances that would encourage its rise again and the companies that sell it.

I owned stock in SSRI (silver)a few years ago as well as Homestake Mining (gold).

I would never buy gold from a company and allow them to ' hold it' for me.

The only people that would do that are the low hanging fruit of society.

I own a few ounces of gold and numerous ounces of silver. But I buy them from the local coin store for a couple of dollars over spot.

But I started thinking about those companies that DO sell metals with those promises. We have all seen their advertisements. I am confident they don't own every ounce they 'sell' to investors and I was wondering if there was any regulation to govern them like checking and savings accounts / fractional lending.

If there was a major rise in the price they would not be able to cover all the gold they have promised. These companies are legal but professionally I think they are somewhere between a pawn shop and a coin store.

The only difference is that their advertising is slicker.
 
Overnight said:
Just contact them and ask...

mailto:metals@cmegroup.com

Or...+1 312 930 3172 CME Clearing House Deliveries. It can't hurt to ask the questions.
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Thanks, I 'll do that and I'll let you know if they reply.

It never occurred to me to email them...
 
I think it might not be regulated very much. Same with forex... the reason there are so many forex brokers is that it's not regulated. Who regulates what/which pair? Would US regulate EUR.GBP?
 
I use GLD if I want to buy and hold long gold. I would say most people want to own the physical so they can trade it for a shovel some day.
 
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