New York 11/08/2011 - Gold on the Comex division of the New York Mercantile Exchange fell away from its record high Thursday afternoon as traders took profits in anticipation of additional margin requirement increases in the coming days.
Gold futures for December delivery closed down $32.80, or 1.8 percent, to end at $1,751.50 an ounce in New York. The yellow-metal also settled significantly lower than its lifetime high of $1,817.60, which was set overnight.
The impetus for the pull-back came from the CME Group, which announced that it will raise gold margin requirements by 22 percent at the close of business tonight.
Speculators in Comex gold will be required to make an initial deposit of $7,425, up from $6,075 previously, to hold a benchmark 100-ounce gold contract overnight.
The maintenance margin requirement for speculative traders and the margin for hedge accounts will rise to $5,500 from $4,500.
The CME aims to limit volatility by making it more expensive to hold the same amount of gold. This places short-term downward pressure on prices because smaller investors are forced to liquidate positions to meet the higher margins.
“Gold was ripe for a $50-$100 [per ounce] step-back from the highs. First of all, $1,800 is a pretty important psychological high-water mark that will naturally encourage some profit-taking,” a US-based gold trader said.
“But, more importantly, this is likely the first in a series of [margin requirement] hikes over the next two weeks. There's no way that [the CME] was going to be happy with gold trading in $50-$100 daily ranges - that's just too volatile. When silver went parabolic to almost $50 [an ounce] earlier this year we saw a total of four margin increases,” he added.
The trader also noted that that several times this week gold was more expensive than platinum. The last time that happened was in 2008 shortly after the markets collapsed.
“Now that's it's more expensive to hold gold, I would expect some money to make it's way into platinum, which looks cheap. [The gold-platinum] ratio should now move into a more reasonable zone,” the trader said.
Platinum futures for October delivery on the Nymex were last trading up $16.90 at $1788.60 an ounce.
Gold also caught a down-draft from much stronger equity markets. The Dow Jones industrial average was last up by 319 point, or 3 percent, while the S&P 500 added 39 points, or 3.7 percent.
US stocks surged following a report that new claims for US unemployment benefits dropped to 395,000 last week, their lowest in four months. It also beat expectations for a reading of 401,000.
Elsewhere, shares in Europe rebounded sharply with Germany’s DAX up 3.28 percent and France’s CAC up 2.89 percent on news that French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet next Tuesday to discuss the eurozone's finances.