It seems lawless, how the largest and most diverse exchange in the world has sailed under the protective flag of ‘reducing exposure’, using the same method to punish gold as they did to silver. As of Friday morning, CME, Chicago Mercantile Exchange group raised gold margin requirements 22%. Although a 22% hike is nowhere near the 84% hike silver had, with the US government collaboration playing the role of short term traders, had forced the correction to buy some time until things get “better.”
Fortunately, with the hand of the government involvement, CME has just done gold a favor!
With all intent purposes, to protect economic growth and improve portfolios by reducing the value of gold , CME has shaken out the short term speculators and weak players, thereby putting the yellow metal into stronger hands. Such short term pullback in gold from the margin hike only serves to increase the probability that the price will eventually move higher and the bull market last longer. Perhaps it was not CME’s purpose, but they are helping gold investors and not hurting them.
While eventually margin requirement increase would have happened, gold always retraces to consolidate through time as will after this. However, the question people are curious about, why did the CME waited so long to increase the margin requirements. The timing is perhaps more relevant in that, over the last eight trading sessions the US government raised the debt ceiling, which means that compulsive spending will continue to add to debt to grow. Also, there is a global currency war going on. When seeing gold price rising, it’s a big battle for the CME. They just admitted that gold is currency, since it is included in the basket of international currency margins being adjusted.
The US government plays a dangerous hand with CME when they shackled gold. Just as the last gold margin requirement increase went on in January when gold was between 1350 to 1390 oz, is proof, that the U.S. government is getting everything wrong, so they had to slap the yellow metal down again today.
While margin requirements are to keep the bull markets in check so it’s not a run away. To shoot down gold during a quick rise. These are only mechanical tackles that make up a giant control box, to knock down commodity prices for the reckless monetary policies that they’re pursuing. What’s more interesting right now, how this will play out for gold. The Asian metal exchange that started up about three weeks ago will more likely kick in for gold. With any price drop a base will be reached quickly – once establishing a base—gold will rise up again from that point on.
The supply and demand factor invites bargain prices. While margin increases also help prevent suicide causing crashes, this is just one of those quick bargain sale opportunities to take advantage. Support buying is coming on from both East and West. Eventually these Pirates margin requirements will come to a braking point to where it will be null and void itself in sense. It is moving in that direction and this is just one of those nails in the coffin to get to that point. It’s going to be interesting to see how this new Asian metal exchange takes root toward it. Nothing will stop gold. “Gold is a hedge, a safety for investors who hold gold in their portfolio for ballast and inflation hedge. There are many global countries and central banks holding gold as a diversification away from the dollar and they don’t hold that gold on margin,” says regal Asset Analyst Team, adding “we can also count on more people jumping into silver over the next few months should they want a more affordable haven-alternative to gold.”