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Why has the gold price plunged this week?

Aug 24, 2011

When the regulators want the price of metals to "stabilize" (i.e., go down), they simply raise the margin requirement. Since most of the speculators buy gold and silver with only a small amount of money down, raising the margin requirements prevents them from buying all that they would otherwise have purchased.

This is what happened to silver in late April and early May. On August 11, the price of gold was pushed down by the same tactic. Now they have done so again, "hiking the fee by 27%."

Before August 11, the speculators had to pay $6,075 per 100 oz. contract for gold. The cost then went up to $7,425. Now it is $9,450.

Contributing to falling gold prices, the CME Group Inc. announced late Wednesday it would be raising the amount of money needed to trade a gold contract for the second time this month, hiking the fee by 27%.

The CME, operator of the Comex, increased the so-called initial margin to USD7,425 per contract from USD6,075. earlier this month. The higher rates were instituted to thin the market of speculative investors who must pay a higher fee to trade a futures contract.

The new CME price for trading gold contracts now stands at USD9,450 per 100-ounce contract.

Gold futures sank as much as 5% in the two days following the August 11 CME margin hike.


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Category: News Commentary

Dr. Stephen Jones

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