Skip to comments.And There's Your Perfectly Leaked Explanation: CME Hikes Gold Margins, Again, This Time By 27%
Posted on 08/24/2011 2:10:06 PM PDT by Nachum
Two weeks after the CME hiked gold margins by 22%, and two days after the Shanghai Gold Exchange sent them higher by 26%, here comes the CME, as we expected, with another 26% gold margin hike (previously: "Should we expect 3 more SGE margin hikes in the next 2 weeks? Or will the CME rightfully accept the baton and do everything in its power to dent the parabolic rise in the alternative reserve currency? We are cautiously looking at what the CME will do today and will advise readers."). And now we know that this particular margin hike was leaked well in advance, and explains the entire $100 plunge in gold today. And as a reminder, the August 1 CME margin hike worked... for about 30 minutes.
(Excerpt) Read more at zerohedge.com ...
Wonder what their profit will be when it bounces back? Playing all the suckers...
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.In truth, the exchange raises margin requirements to guard against losses, because it has to make up the difference when speculators can't cover their losses and go bust. Margin requirements go up (and down) for the same reason that home purchase down payments go up (and down) when home prices go up (and down). Durden's profound dishonesty is one of the reasons his website is pretty worthless as a source of investment information.
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 therefore, are a boon for gold speculators, who can buy or sell more contracts with less cash starting next week.
Well said. Thanks.
Atta way blam, continue to post your historically wrong propaganda.
I don’t know what your motivation is but I do know your preoccupation with “The Business Insider” and their constant bearish outlook on precious metals and their incessant bullish outlook on the stock market is bu!!shit.
If I’d have listened to you and your beloved “Business Insider” I’d be $20,000 poorer right now.
You actually make Cramer look good.
A speculator who puts up $9450 initial margin makes $9450 with a 5% increase in the gold price. That is why speculators use gold futures - 20 to 1 (or more) leverage. By comparison, someone who buys the "real stuff" only makes $472.50 from a 5% increase in the gold price. The reason initial margins go up? If a gold futures contract goes down 10% in a day ($18,900), and that speculator cannot put up additional margin, the futures exchange has eat the $9450 loss, which has to be paid out to a speculator who is shorting gold. Note that any increase in initial margins applies to both the long and the short side - both buyers and sellers of gold futures have to put up more up-front money to make their bets. This means it is more expensive to go long, but it is similarly more expensive to go short, something that Durden leaves out in his misleading screed about the CME attempting to drive gold prices lower.
Duh, if the world went to hell, you will not be able to trade that piece of paper for an old can of beans.
It probably will bounce back and in short order, but gold is such a treacherous market right now I wouldn’t touch it.
Actually a lot of the market is like that what with all the game-playing and insider trading going on. Joe Sixpack plays in this casino’s rigged games at his peril.
In truth, the exchange raises margin requirements to guard against losses, because it has to make up the difference when speculators can't cover their losses and go bust./bingo
>> “Duh, if the world went to hell, you will not be able to trade that piece of paper for an old can of beans.” <<
And is true of all paper.
The only suckers are the one's who are buying this bubble.
I can understand why businesses might want to buy or sell futures to ensure a certain price - Kellogs might want to be able to lock in the corn price for example. An airline might want to lock in fuel prices for a couple years, etc.
But a lot of money looking for a return, large investment firms and hedge funds can move the price of commodities in a big way, up or down, without any actual interest or use of the product in question. Not persuaded that is necessarily a good thing.
And as far as housing goes, it seems obvious now that it was a bad thing. “Easy money” - low interest loans, (Zirp), coupled with no lending oversight plus insane leverage created a huge real estate bubble, and destroyed the investment banking balance sheet, and has called into question the basis of private property ownership (MERS) since the prommissory note and deed have been separated, etc. It just goes on and on... The fraud and corruption is almost beyond description. And if that isn’t bad enough, it’s all been transferred to the public balance sheet.
So you’re saying that downpayment req’s are going up based upon whether real estate values are going up? Not that long ago, downpayments were essentially zero, while RE prices were going up. Now, they are apparently going up, while RE is going down.
I have never given investment advice on Free Republic.
I'm a retired chip-maker, I have nothing to do with anyone in any other business, especially investing.
If you don't like BI, quit reading it...(And, stop whining.)
I didn’t say you “gave investment advice” I said you post self serving propaganda that is wrong.
Propaganda? I have no idea what you're talking about. I could care less what you or anyone else do with your investments, period.
I've received three 'thank you's' (and keep it up) from FReepers this week for the articles I post, you're the only whiner/loser.
I post what I believe are interesting and relevent stories of the day from a number of sources.
If you don't like'em, don't read'em.
So typical, when you have a BS defense, call names.
You're trying to CENSOR!
Try this for a defense:
"The First Amendment (Amendment I) to the United States Constitution is part of the Bill of Rights. The amendment prohibits the making of any law respecting an establishment of religion, impeding the free exercise of religion, abridging the freedom of speech, infringing on the freedom of the press, interfering with the right to peaceably assemble or prohibiting the petitioning for a governmental redress of grievances."
Be a good little boy now...run along.
I’ve received three ‘thank you’s’ (and keep it up) from FReepers this week for the articles I post...