GOLD prices buckled under pressure from anxious investors who cashed in recent gains in a bid to keep their wealth safe, but losses were limited as traders kept a weary eye on Europe’s sovereign debt problems.
“This is not an American problem, it’s a global problem, and in this environment there’s no such thing as a top for gold prices,” said Scott Meyers, senior trading analyst with MF Global.
The most actively traded contract, for December delivery, fell $US32.80, or 1.8 per cent, to settle at $US1751.50 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract touched an intraday record $US1817.60.
Gold is widely considered a haven from financial and political risk, with investors buying the yellow metal as a safe-guard against declines in other markets.
However, market participants were spooked by a trading margin hike from exchange operator CME Group. The new rules, which come into effect at the close of trade today, require speculators in the benchmark 100-troy-ounce gold contract to put up $US7425 to open a position and maintain $US5500 of that to keep the position overnight. CME has said it raises margins in response to higher volatility and not higher prices.
While the increase in collateral requirements is modest, for many investors it recalls the series of margin hikes in silver futures earlier this year which snuffed out silver’s record-breaking rally. The changes come as gold futures set record highs almost daily. Higher margin requirements tend to force out investors who lack the extra capital needed to maintain their positions.
“Right now the exchange is mounting its attack on investors by raising margins. I expect a series of them,” Ira Epstein, director of the Ira Epstein division of the Linn Group, said in a note to clients.
The margin hike drew investor attention to the recent acceleration in gold’s rally, as while prices are up 7 per cent in August other markets have seen sharp declines.
For some investors, gold is one of the few profitable positions in their portfolio and they are choosing to cash in those gains in case prices start to crumble.
“There’s anxiety on a global level right now,” Mr Meyers said, adding that gold’s retreat was temporary as investors were taking profits after gold reached another record earlier in the session.
Gold’s losses were limited as fears about the spread of Europe’s sovereign debt problems to France kept gold supported. Bank of France governor Christian Noyer has defended the financial state of French banks, saying rumours they lack adequate capital levels are unfounded.
The level of their capital is “adequate and their medium- and long-term funding programs are being carried out under perfectly satisfactory conditions,” Mr Noyer said.
France is the second-largest economy in the euro zone and many fear that the European Union lacks the financial might to bailout such a large economy.
