After hitting a new record high above $1810 in Asian trading today, gold prices have been falling since then, dropping the most in seven weeks due to margins on gold contracts being raised. Spot gold fell to as low as 1754 by 15:00 GMT today.
CME Group Inc., the world’s largest futures market, announced today it increased margins on gold contracts by 22 percent.
The minimum amount of cash that speculators must keep on deposit for an initial account increased to $7,425 on 100-ounce contract from $6,075.
The change in margin has prompted investors to readjust their positions in gold, many are unwinding their long positions as the short-term risk-reward is not in favour of gold.
Gold has been rising at an accelerating pace recently, especially after the U.S. credit rating downgrade last Friday, so it is not surprising that the CME has reacted by raising margins.
Gold has risen by 49 percent so far this year, and surged by 8 percent since the Standard and Poor’s downgrade of the U.S. credit rating, as demand for the safe haven precious metal increased on recession fears.