CME Group: Comex Gold Margins Raised To Protect Investors

Higher collateral requirements for trading gold futures are aimed at protecting investors and are in response to rising volatility, exchange operator CME Group Inc. (CME) told Dow Jones Newswires Thursday.

CME spooked gold investors with a late-Wednesday announcement it was increasing the amount of deposit required to trade a number of its gold futures products, including the benchmark 100-troy-ounce futures.

Speculative investors must put up $7,425 to open a position and maintain $5,500 of that to keep the position overnight, an increase of 22%. The new rules came into effect at the close of trade Thursday.

"At CME Group, margins are adjusted frequently across all of our products based on market volatility," a spokesman told Dow Jones in an email. He added that margins ensure each market participants has enough money on hand to cover "the most likely price moves each day."

Indeed, gold's rally has been gaining steam with prices rising 6% so far this week, compared with a 1.3% increase last week.

The higher collateral requirements appear modest as they represent just 4% of the full value of one gold futures contract, calculated using Thursday's settlement price of $1,751.50 a troy ounce for the most actively traded, December-delivery gold.

However, for many investors it recalls the series of margin increases in silver futures earlier this year that helped snuff out silver's record-breaking rally. CME raised silver margins by a total of 84% between April 26 and May 5, which market participants said triggered a 27% decline from April 29 to May 6 in silver prices as investors who lacked adequate funds were forced out of the market.

At the time, CME group denied its actions contributed to the decline in silver prices--a point the company reiterated today.

"Though margin changes may coincide with price increases or decreases, margins are not changed as the result of particular market prices. Moreover, margins are not set to dampen or heighten volatility, but rather to protect investors' portfolios from price swings," the spokesman said.

The most actively traded gold contract, for December delivery, fell $32.80, or 1.8%, to settle at $1,751.50 a troy ounce Thursday on the Comex division of the New York Mercantile Exchange. The contract touched an intraday record of $1,817.60.

Thinly traded August-delivery gold settled $32.50, or 1.8%, lower at $1,748.80 a troy ounce after setting an intraday record at $1,813.50.

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

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