Gold and Silver Prices Plummet Following CME Margin Increases

Impact of CME Margin Increases on Precious Metals

By Ishaan Arora

Recent Market Trends

Feb 2 (Reuters) - Gold and silver extended falls on Monday after CME Group raised margin requirements following a sharp selloff in precious metals last week on U.S. President Donald Trump's nomination of Kevin Warsh to be the next Federal Reserve chair.

Analyst Insights

Spot gold logged its sharpest one-day drop since 1983 on Friday with a fall of more than 9%, and had lost a further 3.6% to $4,686.51 per ounce by 0504 GMT. U.S. gold futures for April delivery were down 0.8% at $4,707.60 per ounce.

Future Expectations

Spot silver plunged 27% in the previous session in its worst daily fall on record and has lost an additional 6.7% to $78.96 an ounce on Monday.

"The Warsh nomination, whilst likely being the initial trigger, did not justify the size of the downward move in precious metals, with forced liquidations and margin increases having a cascading effect," said KCM Chief Trade analyst Tim Waterer.

CME Group announced hikes in margins on its metal futures on Saturday and the changes are set to take effect after market close on Monday.

COMEX gold futures margins (1oz) are raised from 6% to 8%, while COMEX 5000 silver futures (SI) are set to increase to 15% from 11%. Platinum and palladium futures will also see increases in margin requirements.

An increase in margin requirements is generally negative for the affected contracts, as the higher capital outlay can dampen speculative participation, reduce liquidity, and pressure traders to unwind positions.

Analysts noted that leveraged investors were getting wiped out, forcing them to sell other assets to cover silver and gold margin calls. Asian stock markets were sliding and U.S. equity futures dropped 1%. [MKTS/GLOB]

"Warsh may still lower rates soon after he gets into office, but he is the not the 'ultra dove' nomination that the market had largely priced in," Waterer said.

"His policy approach has been generally supportive of the dollar and by inference, negative for gold, due to his focus on inflation and dim views on quantitative easing and excessive Fed balance sheets." [USD/]

Investors still expect at least two rate cuts in 2026. Non-yielding bullion tends to perform better in low-interest-rate environments. [FEDWATCH]

The crash in precious metals seems to have temporarily ended the record-breaking price rally that saw gold scale a record high of $5,594.82 an ounce on Thursday and silver notch an all-time peak at $121.64.

Analysts at J.P. Morgan said despite the recent volatility, they expected the rally to remain intact in the longer term.

"We remain firmly bullishly convicted in gold over the medium-term on the back of a clean, structural, continued diversification trend that has further to run amid a still well-entrenched regime of real asset outperformance vs paper assets," they said in a note.

Spot platinum lost 4.4% to $2,067.06 per ounce after hitting a record $2,918.80 on January 26, while palladium shed 4.6% to $1,620.18.

(Reporting by Ishaan Arora and Swati Verma in Bengaluru; Editing by Subhranshu Sahu)