Commodities Watch: Comex Lowers Gold Margins, Raises Some Ags (CME, GLD, IAU, MOO, DBA)

The CME Group Inc. (NYSE: CME) has announced changes to its margin requirements for a number of commodities. The changes, some increases and some decreases, cover a variety of oil-related contracts, gold, and agricultural products.  The new rates go into effect following Monday’s close.

The changes in margin requirements could have an impact on ETFs like the SPDR Gold Trust (NYSE: GLD), the iShares Gold Trust (NYSE: IAU), the Market Vectors Agribusiness ETF (NYSE: MOO), and the PowerShares DB Agriculture Fund (NYSE: DBA) insofar as the changes move the commodities prices themselves.

The headline change is a drop in the margin price for the standard 100-ounce gold contract from $6,751 to $6,075 for a non-commercial (speculative) new contract. The maintenance contract price has also fallen from $5,001 to $4,500. The 10% drop means that a speculative buyer can get 11 contracts for the price of 10. Commercial and hedging contract prices will fall from $5,001 to $4,500 for both initial and maintenance purchases.

CME is making the change as part of its “normal review of market volatility to ensure adequate collateral coverage.” Exactly how this will affect gold prices is not immediately clear, but it’s not a bad guess that it will add liquidity and foster more buying.

Just the opposite seems to be happening in the ag market, where prices for corn and wheat are going up. An intra spread contract for corn futures is going up for non-commercial traders from $270 to $405, and for commercial/hedge traders from $200 to $300. For wheat intra spreads, the initial non-commercial contract price rose from $203 to $304 and the commercial/hedge contract rose from $150 to $225.

Intra spread contracts allow trading between listed months of a specific contract on a price-differential basis. It’s a relatively safe way to maintain a position in a commodity without risking a great deal.

At the beginning of May CME lifted the margin requirements for the silver contract multiple times, contributing to a fall in silver prices that is still in effect. It is doubtful that these new changes will have the same impact, one way or the other. Because the changes hit several heavily traded and heavily watch commodities, however, the changes are worth noting.

Paul Ausick