For the second time this month, the CME Group, the operator of New York’s Comex exchange (the main metals and energy exchanges in the U.S.), announced an increase in margin requirements to trade gold. It raised the amount of money needed to trade gold contracts by 27% to $9,450 per 100-ounce contract.
This followed a 22% increase in margin requirements two weeks ago.
After Shanghai Gold Exchange raised its margins on Tuesday, there were rumors that CME would follow suit. This led the price of gold into a correction even before the news was announced.
This price of gold has now dropped more than $160 per ounce from a high of US$1911 on Tuesday to below US$1750 on Wednesday. This was the largest two-day absolute fall in more than thirty years, and a more than 8% correction.
The last time CME hiked the margin requirements for silver four times in May 2011, the price of silver dropped more than 20% in a week.
The current pullback gives a nice entry point for long term bulls on gold to add to their positions, although if the price fails to hold at the current levels, we could be seeing a quick drop back to the US$1650 region.
There are also talks of portfolio rebalancing by the fund managers. Rebalancing involves reducing the gold weightage in their portfolio as gold has risen so much within a short period of time.
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