CME Lowers Trading Margins On Comex Gold

Exchange operator CME Group Inc. (CME) cut the amount of collateral required to trade gold futures in a move that may invite greater speculation in gold.

As of close of business Monday, speculators in the benchmark gold contract must put up an initial margin of $6,075 per contract, down from $6,751. To keep the contract overnight, these traders must maintain $4,500 of the initial margin, down from $5,001.

Comex owner CME also lowered the initial and maintenance margin requirements for hedgers and exchange members, to $4,500 from $5,001 previously.

"When price movement becomes less volatile, margins typically go down because the risk of the position also decreases. This is the case with the decrease in gold margin requirements yesterday," CME said.

The lower margins are a boon for gold speculators, who can buy or sell more contracts with less cash starting next week.

"Any margin relief is usually a help," said George Gero, vice president with RBC Capital Markets Global Futures.

However, CME said it wasn't concerned about inviting additional speculation, as margins aren't "a means to move a market one way or another, or to encourage or discourage participation from one kind of market participant or another."

Last month, CME's decision to raise trading margins on silver some five times in 15 days roiled the silver futures market. Silver futures slumped 27% as CME hiked collateral requirements a massive 84% to $18,900 to open a silver position.

At the time, the exchange said silver price volatility called for higher collateral requirements and the moves sought to ensure all market participants were adequately capitalized to weather an adverse price move.

The swift series of margin increases sparked a rush to cash among silver investors, who fled the market after struggling to keep up with margin calls. Silver futures have yet to recover from the slump as prices, the number of market participants and trading volumes all remain subdued.

"Margins are important, and obviously the movement in silver margins was a pretty big deal," said Bill O'Neill, a principal with Logic Advisors.

CME's change to the gold margins has had a less dramatic effect. Announced late Thursday, the news helped gold futures creep higher Friday. Gold for September delivery, the most actively traded contract, gained $9.20, or 0.6%, to settle at $1,539.10 a troy ounce on the Comex.

-By Tatyana Shumsky, Dow Jones Newswires; 212-416-3095; tatyana.shumsky@dowjones.com

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