CME Margin Hike Not Likely to Stall Gold Rally

Gold prices tumbled following CME Group'smove to increase margins for Comex gold futures, but traders say it is not likely to be enough to stall the precious metal's bull run for long.


Many traders were already bracing for a modest pullback in gold after its 10 percent surge in three days to a nominal record above $1,817 an ounce. As traders' appetite for risk improved and stocks and other commodities posted strong gains, December gold futures tumbled $80 to $1,735 an ounce. But that's only a 4.5 percent drop after gold prices gained more than $300 since July 1.

The CME will raise gold margins by 22 percent at end of business Thursday. But implied volatility in gold has shot up 30 percent to the highest level since 2008. So, some traders say this single margin hike probably isn’t enough to cool the gold rally.

To put it in perspective, when silver lost one-third of its value in May, after soaring to almost $50 an ounce, it was following four margin hikes by the CME in a one-week period.All told, the CME raised silver margins by 60 percent in late April to early May.

Gold traders may continue to take profits after the precious metal's strong rally over the past two weeks. The real test for gold’s near-term direction could come at the close. Looking at the technical levels, traders say if gold settles below $1,741, prices could test key support around $1,704.

But that would only be a 6 percent fall from gold’s all-time nominal high.