Tag Archives: silver price

The Volcker Rule and its Effects on the Precious Metal Industry

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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.

Silver Prices Rising Due To Shady Transactions in India

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As in many other undeveloped countries, black money is abundant on every single level of the Indian economy. This is a matter that has attracted nationwide attention because it seems to be slowing economic growth. The national government has declared a war on this issue, trying to eradicate the flow of this money.

Measure after measure, people involved in these illegal activities are looking different ways to back up their wealth and transform their black money into “white”. According to a report from The New Indian Express, this is intensively happening in Salem City, in the state of Tamil Nadu.

How Is Silver Gaining From This?

In the constant quest of transforming black money, people involved in these activities are naturally attracted to precious metal. At first, most people were buying all the gold they could with their black money, but now they are more attracted to silver for obvious reasons.

“After demonetization, most of the black money holders in and around Salem bought gold bars. But, after information spread that government will next focus on gold sales, they are afraid that the gold rate will come down drastically in the coming days,” said a silver anklet shop owner that was interviewed for the news report.

Salem City has abundance in silver commerce, mainly in form of anklets. This is leading black money holders in the region to visit the city in order to spend their wealth and backing it up with a safe metal.

Legal Actions

The national government is committed to search and prosecute those people who are involved with black money, arguing the threat they suppose to the whole economy. In fact, the population that falls in this shady sector were buying gold by the ton before official statements.

“There have been reports from around the country that people were buying gold, often at a premium, with the demonetized currencies. Following this, the Central government responded saying they will track jewelers and purchases to crack down on black money holders,” says the article.

It is logical to think that this announcement affected the gold market and redirected black money holders towards silver bars, anklets, and other presentations that would result useful for backing up their wealth, enjoying a degree of liquidity which is much easier to manage than if they were to buy gold bullion or jewellery, which is of a much higher value per item.

Global Impact

There is no way to know if black money holders have the capacity to influence the global market of silver and gold. It’s true that this population handles a massive amount of money, also involving illegal businesses. But from this to pushing forward an international market, there is a lot to consider.

India represents the second global consumer of the yellow metal. Now those black money holders are afraid of putting their bet on physical gold, this could actually affect the market. This would be decreasing the national demand, not only in Salem City, where silver is more popular than anything else.

Nevertheless, India’s rural finances are stronger than ever, thanks to the good monsoon. This means that gold demand will continue to increase, because farmers have limited access to the banking system, pushing them to invest in metals.