Friday, August 12, 2011

Trader Dan Discusses Difference Between Manipulative Margin Hikes in Silver vs Wed's Hike in Gold

Trader Dan discusses why he believes this week's 22% margin hike in gold is not indicative of manipulation as was the series of margin hikes WHILE silver corrected in early May. 

In order to protect the integrity of the clearing house and also the integrity of the brokerage firms, the exchanges will hike margin requirements in order to have those accounts properly funded so that the clearing process can continue without any sort of interruption.The margins were raised from $6,075 to $7,400 for a full sized gold contract. When gold is making intra-day price swings of $60 to $80, you are talking about a move from $6,000 to $8,000 per contract, depending on how far gold is ranging on that day. Even $7,400 for a margin requirement on gold, I mean an $80 move on gold and all of that money is gone.

That is why the exchanges begin to get nervous and want more money in the accounts in order to protect themselves from any sort of defaults coming from the customers.
We did see some questionable margin hikes when silver was declining from the $50 area, margin hikes that were very suspicious, but that is not the case right here in gold. In fact, I am surprised the margins were not raised sooner and again I see nothing sinister here.
The market has already priced in the effect of this margin hike and in order to see more liquidation we would have to see gold break below roughly the $1,740 level. If we were to go below that level you would see some technically related selling which would then be impacted by the increase in margins. Estimated volume was high today so some of the weaker hands have already been flushed out of the gold market.
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