Puzzles and Making Gold and Other Metals Cheaper to Trade
I have no patience for jigsaw puzzles. Okay, I was able to endure simple 50 to 100 piece puzzles as a young child, but the 1,000 piece variety? Forget about it. I’ll sit in the room and socialize with the folks who take on a puzzle of that complexity, but I will not participate in going through the pieces. Over the summer to pass the time of my brother in law’s pending funeral, my wife and her nieces pieced together a 1,000 piece puzzle of the Governor’s Mansion of Colonial Williamsburg. They did an amazing job of sorting through all those seemingly unrelated pieces and creating a beautiful image. Me? I just sat back and did some reading and boob tube watching.
Gold and the CME-COMEX
Here’s a puzzler: The COMEX (to some it is known as the CRIME-EX) has decided to EASE margin requirements (the extra money you need in a commodities trading account above and beyond the cost of an actual contract) for gold, copper and silver. The changes go into effect at the close of business Tuesday.
(The complete announcement from CME Group can be viewed at this link: http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv12-498.pdf.)
Faith in Begorrah! Holy Smokes! To cut to the chase, the COMEX is making it easier to speculate in these key metals futures contracts which ought to draw in more speculators. This is a two edged sword in that easing of margin requirements could ignite an upward bias in the price of gold, though with more speculators, volatility will increase which could enhance moves in the metals in either direction. Lowering requirements, one would think, would spur buying interest, though it could also bring more shorts to the COMEX table. Bottom line is that just because the COMEX lower requirements does not assure a straight stairway up in price.
This, however beats an increase in margin requirements which has the immediate tendency to force speculators out, or to sell their positions and thereby has hurt the price of metals. The most notorious example of damage from raised margin requirements resulted in the silver crash of 2011. Yes, the speculation in silver had become rampant at that time with the price nearly hitting $50 an ounce, but I fault the COMEX for going overboard with its series of margin hikes. The COMEX claimed it was merely trying to chill the speculation. There should have been far fewer hikes at that time merely to arrest some of the volatility but not so many margin hikes as to crash the price. It was a total debable in my mind and done for ulterior reasons. There was no balance. It was as if the COMEX came along and dropped a boulder on a see saw which caused the opposite side almost mortal damage.
BUT, we’re are dealing with a different animal this time – LOWERED margin requirements. In the case of lowered Gold margins, COMEX is easing requirements by nearly 20%. That’s a big reduction.
It leads me to wonder what they are up to.
It could be as simple as the CME-COMEX stated - the changes were made as the result of: “normal review of market volatility to ensure adequate collateral coverage.” That’s simple enough.
Others think it’s for sinister reasons. A bunch of guys on the Jim Sinclair Facebook page theorize that it’s sheep being led to the eventual slaughter scenario. Ha ha, or is that Baah, Baah.
Others say, trade has slowed down too much in the metals futures and that the COMEX is trying to drum up some business with a move that would pump up the volume.
The most outlandish conspiracy theory involved with this is that U.S. PTB (power that be) want the price of metals slowly manipulated to make it more costly for China to accumulate gold and copper.
Whatever the “why” is to this news, it’s a fact of life that the overly leveraged paper futures market controls the price of gold which makes this an important development for the metals and for their off COMEX exchange cousins including US Mint products, rare coins and physical bullion.
The gold bulls are hoping that making it easier to play on the futures exchange will help to spur a breakout of the recent trading range, as far as I can tell from reading about this on the web. While some dream of $10,000 an ounce gold, many would be excited if gold were to break the $1,800 ceiling sooner rather than later. We’ll know the outcome soon enough.
Related… a discussion between Max Keiser and Stacy Herbert on Crashing JP Morgan; then Max talks to gold guru James Turk.
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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