In a couple of moves the CME Group recently raised the margin for
trading gold futures from 4,500 to 7,000 dollars. The move came as a
response to increased volatility after an unprecedented strong rally
during the last couple of months. The exchange is not trying to dictate
the direction but in order to keep some integrity in the market they had
to respond to the increased intraday volatility.
Have they done enough? Probably not, as volatility is still trading
at almost twice the level compared with the first six months of 2011 and
average daily price swings have continued to rise since the last margin
increase on August 24.
Gold margin as a percentage of the contract value is still
relatively low. Over the last two years margin requirements have hovered
between 2.5% and 5.25% with 3.8% currently.
As an example the equivalent for silver was more than doubled earlier this year
How much:
Another rise could bring the margin up to somewhere between 8,200 and 9,000 dollars from the current level of 7,000 dollars representing an increase of between 17 and 28 percent.
Another rise could bring the margin up to somewhere between 8,200 and 9,000 dollars from the current level of 7,000 dollars representing an increase of between 17 and 28 percent.
Impact:
The previous two increases partly help to bring about the 200+ dollar correction and has so far not reduced intraday volatility. Speculative involvement from hedge funds has been reduced over the last three weeks as margin increases make an impact on the position size they are allowed to hold.
The previous two increases partly help to bring about the 200+ dollar correction and has so far not reduced intraday volatility. Speculative involvement from hedge funds has been reduced over the last three weeks as margin increases make an impact on the position size they are allowed to hold.
With the increased potential for another round of stimulus from the
Federal Reserve gold should be supported at this stage but as the recent
correction highlights nothing ever goes in a straight line and
discipline remains the key.
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