An increase in margin requirements to trade gold futures has done little to take the steam out of the metals rally as gold exchange traded funds were marching higher again Tuesday.
Gold declined earlier this month when the Chicago Mercantile Exchange raised margin requirements on gold contracts by 22% as prices touched $1,800 an ounce. [How Will Margin Hike Impact Gold ETFs?]
Gold has benefited from continued low interest rates in the U.S. and debt turmoil in Europe. Fitch Ratings on Tuesday affirmed its triple-A credit rating on U.S. debt.
“The U.S. Fed pledged to keep official rates at rock-bottom levels until 2013, the European Central Bank stepped in to purchase Italian and Spanish bonds and the Swiss and Japanese central banks intervened to weaken their currencies,” ETF Securities said in a report this week. “Short selling equity bans were introduced in France, Spain, Italy and Belgium after shares in European banking giant Societe Generale slumped back to credit crisis levels last week.”
An ETF that invests in Germany fell more than 2% in early U.S. trading Tuesday after the country reported lackluster economic growth for the second quarter. [Germany ETF Down After Weak GDP]
“German chancellor Merkel and French president Sarkozy meet today to discuss European governance as the contentious issue of creating jointly sold ‘Eurobonds’ gathers momentum,” wrote ETF Securities analysts Daniel Wills and Nicholas Brooks in the precious metals weekly update. “Private sector appetite for European sovereign debt remains extremely weak, with market speculation that France’s AAA rating could come under threat last week as investors begin to increasingly question debt servicing capabilities of the larger European economies.”
Investors are trying to handicap whether the CME will again boost margin requirements as gold inches back toward $1,800 an ounce.
“Current gold price volatility is approximately half the levels seen in the sharp run up in silver margins prior to May, although historical patterns suggest scope for a possible further 15% rise in margins,” ETF Securities said. “Such a cumulative rise would still be less than half the hike in silver margins seen in May. It also comes against strong fundamental price drivers for gold – e.g. ongoing sovereign debt uncertainty, extraordinary monetary easing and strong central bank and strategic investor demand.”
ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) was up 0.5% in early trading Tuesday. The fund is managed by ETF Securities.
ETFS Physical Swiss Gold Shares
