With explosive volatility recently in the precious metals markets, the CME Group increased margin requirements for gold and silver futures just a day after their steepest selloff in five months.
Safe haven assets were pummeled on Tuesday, as investors piled into stocks, driving the S&P toward fresh all-time highs, and sinking Treasurys and precious metals. Silver, which has rallied tremendously recently closed down more than 15% Tuesday, dragging silver ETFs down a with it, while gold lost almost 6% as well, sinking below $1900 an ounce in overnight trading.
Gold and silver have both had explosive performances recently, which has resulted in considerable volatility, which is all the more evident in a market decline like what happened Tuesday. Gold dropped over $200, or over 10% from its recent high in just a few days, while silver plummeted almost $6.50 or 21% in the same period.
“As I said in my Kitco Special Report I put out earlier today, which included longer-term weekly charts on gold and silver: On a day when gold prices were down around $85 an ounce on the day and silver down over $2, many precious metals market bulls may be squeamish, wondering, ‘Are market tops in place?’ Of course nobody knows the answer to that question and there are all kinds of opinions and speculation about that topic—especially today,” noted Kitco analyst Jim Wyckoff.
Other analysts are concerned about the prospects for precious metals as well.
“[The precious metal] made another attempt yesterday afternoon to reach the record high it posted at the end of last week, though it failed and only made it to $2,050. The price has been on a downward trajectory ever since,” wrote Commerzbank analyst Carsten Fritsch.
Increasing volatility means investors could experience more significant fluctuations in the size of their accounts, and higher margin requirements assist the exchange’s clearinghouse in mitigating issues and ensuring that trade obligations are met.
According to the changes in margin, gold investors and traders must put up an initial margin requirement of $10,230 to open a position in a contract and $9,300 to retain that position, an increase from $9,570 and $8,700, respectively. Hedgers and members are required to meet initial margin and maintenance margin requirements of $9,300, up from $8,700.
Meanwhile, silver speculators need to add an initial margin requirement of $14,575 and a maintenance margin of $13,250. Hedgers and members must pay initial and maintenance margins of $13,250.
For ETF investors, investments in gold and silver can still be made through ETFs like the SPDR Gold Shares (GLD) or the iShares Silver Trust (SLV), which should have the same margins as non-leveraged ETFs.
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