Yesterday, in aftermarket trading, gold rocketed briefly to a new high of $1814.95. That's a 12% rise since August 1, and 9.5% since the beginning of this week. In some universes, a 9.5% rise in one year is worthy of a champagne celebration. Presently, gold is trading $62 off that brief high.
Some attribute this pull back to CME Group's raising of margins required on gold contracts. The minimum amount of money necessary to keep on deposit was just raised from $6,075 per contract to $7,425. Immediately this morning, the news reminded us that CME did this 4 times to silver last May causing silver to drop from its briefly touched high near $50 an ounce to as low as $33.
When this happened to silver, the news was silver is down 35% from its high. The news could just as easily have been silver is up 80% in the last 12 months. Sure, CME Group's raising of margin requirements had a hand in driving down the price of silver in May and the price of gold this morning. But, really, how much motivation does one need to take some of that 9.5% 3-day profit off the table?
What would surprise me is if the entire 9.5% is not taken back. That would still leave a healthy 2.5% return in a matter of just 11 days. I did see some expert commentary that said this CME action would not have the same effect as it did on silver prices. I would agree! When you know who is buying gold you understand how insignificant this action is. Do you think China, who likes to buy gold by the tonne and take delivery, really cares about margin requirements on 100 oz. gold contracts? How about Russia, India, Brazil and multiple Central Banks of the world.
To those who seek to add gold to their reserves, this pull back is nothing more than a great buying opportunity. If JP Morgan is right, and gold is about to climb to $2500 per ounce by the end of the year, gold price pull backs, to the real gold buyers of the world, are tantamount to finding a pair of David Yurman sunglasses at the outlet mall.
I mean, who wouldn't want a $2 million discount on a tonne of gold?