London changes gold rules

There are two significant fresh developments to cover, one affecting the precious metals markets this coming Friday and the other announced over this past weekend that will potentially impact numismatic and precious metals transactions.

First, on March 20 the London Bullion Market Association will change its process for determining the gold fix. Up to now, this has been set twice a day during long meetings among four or five banks through whom all those looking to buy or sell had to place their orders. The U.S. Department of Justice and the Commodity Futures Trading Commission are investigating whether funneling the entire market through these few entities made it possible for them to manipulate prices.

Beginning on Friday, the ability to rig prices on the gold market in London will become far more difficult. The mechanism for setting the fix will be determined by auction instead of a meeting among the current four banks. Other entities that are already full members of the LBMA will also be allowed to directly participate in these auctions rather than disclose their intentions to the other banks ahead of time. Three Chinese commercial banks are already full LBMA members and could become direct participants – the Bank of China, the Industrial and Commercial Bank of China and the China Construction Bank.

The identity of the direct participants will not be released until Friday, so it cannot be stated for certain if any of these three banks will immediately become direct participants in the gold price fix. To the extent that one or more of them do so, that means that the current banks that set the fix will not have advance access to the positions and plans of such banks that do become direct participants. Without such information, it will become difficult for private banks to use the London gold fix to manipulate this market.

If one or more Chinese bank is announced as a direct participant on Friday (they also can join in at later dates), that will increase the prospect of gold prices rising and reduce the likelihood of further declines.

Second, over the weekend the Professional Numismatists Guild announced some changes to its bylaws. Most were of minor importance. The one revision that could potentially affect numismatists is a reduction in the statute of limitations to file a claim for PNG arbitration involving the sale of stolen or counterfeit coins.

Previously, PNG members were required to agree indefinitely to be personally liable to submit to PNG arbitration over the sale of stolen or counterfeit coins. This indefinite liability could theoretically occur decades down the road and long after a dealer had retired. The PNG Board of Directors, in setting a statute of limitations, believes that 10 years after the transaction is sufficient time to learn if an item sold might be stolen or counterfeit.

A standard practice by reputable coin dealers has been to indefinitely guarantee the authenticity of items as described. Further, the bylaw change by the PNG will not require that any particular coin dealer set their own limitation on claims over selling stolen or counterfeit items. The PNG bylaw change merely says that PNG will not offer to arbitrate such disputes more than 10 years after the transaction date.

There are at least three reasons why PNG is changing this bylaw now. The first is the increase in the number of high-quality counterfeits means that more fakes will pass through the hands of one or more unsuspecting dealers. Second, the increased number of coins that have been sent to certification services increases the possibility of finding stolen coins compared to years past.

Third, there is a greater risk to coin dealers that sales to owners of precious metals Individual Retirement Accounts might be fulfilled by wholesalers with counterfeit merchandise– where the selling coin dealer has never had the opportunity to examine and check the authenticity of the merchandise being delivered on their behalf. There are stories going around among coin dealers about counterfeit U.S. Mint-sealed 500-coin boxes of silver American Eagles being sent to depositories by wholesalers where no one checked that the pieces were genuine at the time of sale. The problem then wasn’t detected until years or decades down the road when the items are sold or distributed. In this instance, the IRA owner, the selling coin dealer and the depository all think that the orders were filled with genuine coins. (By the way, this is one more risk for people who establish a precious metals IRA.)

I have not discussed the reasons for or about the timing of this change in the PNG bylaws with any of the directors involved in the decision to make the change. I would not be surprised if one or more of the foregoing reasons were behind this change. A 10-year PNG statute of limitations should be ample time for more investors and collectors to take good care of their holdings. Yet, even though this should ultimately make a difference to just a few people, it is just one more reason for buyers of precious metals and numismatic items to look out for their own best interests.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).