As if gold isn’t getting bashed enough, CME Group Inc. (NASDAQ: CME) will raise its margin requirement on the Comex on Monday to $8,800 for a standard 100-ounce gold futures contract. That is a jump of 25% from the current requirement of $7,040.
The change is having an impact on the price of gold today, and one investment analyst told BullionVault:
For those who cannot put out margin calls on time, they will be squeezed out even when they don’t want to get out.
That will do nothing to support gold prices. In fact, quite the reverse. If gold was being used as collateral for secured loans (cash-for-gold), we are now likely to see an increase in cash margin calls. If the dollars are scarce, then these gold positions will have to unwind in order to avoid defaulting. The result is more yellow metal becomes available. And the more gold there is available, the lower the price.
There are ways to hedge that golden collateral, but only if the futures price is expected to be higher than the current price (contango). If the market is backwardated and current prices are higher than the futures price, then now is the time to unload that yellow metal.
As the old song goes, “Which side are you on?”