Margins on Gold futures have tripled

Here is an 11 year overview of the margin (maintenance) requirements to trade Gold futures contracts on the CME.

Follow along and your pattern recognition will develop.

I hope you didn’t think that the price of Gold moved based on demand from Indian jewellery merchants ?

While there are arguments abound whether it’s a measure of inflation, a store of value or even considered currency.

The chart below and my notes within suggest that more than anything else, Gold is a “financial instrument derivative”.

Gold prices seem to be influenced by the futures margins which are set by the CME, which in turn fuels or repels the speculators.

Where the price of Gold typically falters (or is stifled) is when the percentage of the required margin creeps above 4% of the notional contract value.

The eliptical area in the chart is a period when the margins were closer to the 5% of the notional contract value, which is similar to today.

Over the past 2 years, the margins required to trade a Gold futures contract have tripled while Gold has risen 67%

What if the CME increases margins by another 25% or 50%?

by Rob Zdravevski
September 5, 2020

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