This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Margin Hike Threatens Gold Prices

Stocks in this article: GLD AGOL SGOL IAU

NEW YORK ( TheStreet ) -- High gold prices need to watch their backs because margin hikes could be right around the corner.

With gold prices seeing $20-$50 swings daily, the CME could be tempted to increase the amount of money it takes to buy an 100 ounce gold futures contract -- a technique often employed to stem volatility.

Silver was the latest victim of margin hikes and is still recovering. The CME raised margins five times between April 26th and May 9th a massive 68% which eventually resulted in silver losing almost 30% of its value in less than 3 weeks. If the same fate were to befall gold, prices could tank to $1,400 an ounce.

The CME has raised margin requirements for gold twice this year, once in January and once in early August, by 11% and 22% respectively. The moves did little to stem gold's rally. A week after the margin hikes in January gold was down just 2% and a week after the August hike gold was up 1.5%.

But this time may be different for gold. As shown in the chart above from MFGlobal, gold's average true range is 40, a level not seen since the end of 2008. The last time the CME underwent a series of margin hikes for gold was between December 2009 and February 2010 when it raised requirements 50% that was when gold's average range was in the mid to high 20s.

Phil Streible, senior market strategist at MFGlobal, says "if we get these higher price swings for a few days I would anticipate a margin hike." Mihir Dange, founder of Arbitrage, agrees "it is possible ... If we see gold move more 5%-6% we could see margin requirements go up."

The Shanghai Gold Exchange beat the CME to the punch and raised margins Tuesday by 1%. The last time the exchange increased rates was August 8th, three days later the CME hiked requirements by 22%.

Not all experts think a margin hike is imminent. Anthony Neglia, president of Tower Trading, says "it's an algorithmic program it's not a bunch of guys sitting around a table." Neglia does say if gold hits $1,950 or above there could be a 15%-20% margin hike. It depends "on how we get there ... how fast and how hard then the margin requirement may kick in."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,088.01 +57.80 0.32%
S&P 500 2,091.31 +9.43 0.45%
NASDAQ 4,808.5230 +35.0510 0.73%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs