The Consumer Council has issued a word of caution to investors of highly speculative Loco London Gold Margin Trading amidst rising gold prices.
Unwary investors are extremely vulnerable and at the mercy of investment companies which are not registered members of the Chinese Gold and Silver Exchange Society (CGSE), the self-regulatory body in the trade.
Secondly, subsidiary companies of CGSE members may or are NOT members of CGSE and as such CGSE has no authority to intervene in the event of dispute.
Thirdly, if an intermediary carrying on Loco London Gold trading activities is not involved in any regulated activities (e.g. dealing in securities or futures) of the Securities and Futures Commission (SFC), it is not required to be licensed by or registered with the SFC.
London gold is traded on a bilateral basis in the over-the-counter market. Like other international financial centres such as London, trading of gold over-the-counter is not subject to specific regulation.
In addition, if investors have signed a power of attorney authorizing their agents to trade (buy or sell) on their behalf, it would further complicate complaint resolution on legal grounds.
The Consumer Council has received, in the first 10 months of 2009, a total of 5 complaints involving misconduct of sales representatives and improper sales tactics in Loco London Gold Margin Trading.
According to the complainants, it usually started with an unsolicited cold call from an agent of some investment company inquiring about their investment goal or experience.
Once trust was established, the complainants were persuaded to open a discretionary account with oral promise of "returns guaranteed".
But all too soon, within a short period time, they found their investment was a total loss.
This was because some agents were allegedly engaged in active buying or selling for as many as more than 30 times in a single day - in breach of the trading frequency (1-2 times per day) as requested by the complainants.
In some cases, the agents might even ask complainants for access to their Loco London gold trading online username or password so as to perform frequent trading on their behalf as a tactic to earn more commission.
Would-be investors in gold margin trading are advised to take heed of the following:
- Never blindly trust the information provided in unsolicited cold calls.
- Never sign a power of attorney swiftly without due caution; be sure you know the authorized person in the power of attorney and clearly define its limits of authority.
- Never disclose personal online trading username and password.
Consumers are urged to refer to this (December) issue of CHOICE for more details and advice in Loco London Gold Margin Trading.
The Consumer Council reserves all its right (including copyright) in respect of CHOICE Magazine and Online CHOICE ( https://echoice.consumer.org.hk/ ).