Just two weeks after raising margin requirements on its 100-ounce gold contract, CME Group Inc. (NYSE: CME) has bumped the requirement again by 27%. It now costs a non-commercial (speculative) buyer $9,450 to open a position and $7,000 to maintain the position overnight. Overnight gold prices fell to near $1,700/ounce from a high just a couple of days ago of nearly $1,900/ounce. But gold was falling anyway, so it’s possible to conclude that the margin increase didn’t have a lot to do with big drop.

Well, not exactly. Aside from the apparent victory of anti-government forces in Libya, nothing else is much changed on the global economic front since the last margin raise on August 11th. Demand for equities is about where it was then, although equity prices have risen slightly in the past week. Most important, there has been no indication that either the US Federal Reserve or the European Central Bank is about to do anything but maintain their present courses. The Fed will keep interest rates at near zero and the ECB won’t raise rates again. But these impacts have been priced into gold already.

Short-Selling Selling Gyrate

The margin increase will give pause to speculative traders mainly because there is probably a better use for $7,000 than merely leaving it on deposit to carry the gold contract for another day. And if the price of gold should fall well below $1,700/ounce — and stay there — the new margin requirements could cool the gold trade even more.

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CME Group used its standard explanation for the higher margin: the increase is the result of a “normal review of market volatility to ensure adequate collateral coverage.”

About an hour before US equity markets open, gold is trading down about -1.5%, at $1,730.60, having come back from $1,705.00. The SPDR Gold Trust (NYSE: GLD) is down about -1.6%, at $168.84, in a 52-week range of $120.42-$184.82. The iShares Gold Trust (NYSE: IAU) is off -1.8%, at $17.21, in a 52-week range of $12.06-$18.53.

The Market Vectors  Gold Miners ETF (NYSE: GDX) is off about -1.1%, at $59.28, in a 52-week range of $50.41-$64.62. The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) is unchanged from yesterday’s close of $34.25, in a 52-week range of $28.70-$44.86.

Paul Ausick

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