Following a historic crash, the exchange has taken emergency action! In the wake of an epic plunge in the prices of precious metals like gold and silver, the CME Group has urgently raised margin requirements for precious metals futures. The gold margin rate has been increased from 6% to 8%, and the silver rate from 11% to 15%, with the new rules taking effect after the close of trading next Monday.
Spot gold recorded its largest single-day drop in nearly 40 years on Friday, with intraday losses exceeding 12%; spot silver, meanwhile, set a new record for its largest-ever intraday decline, plummeting over 36% at one point. Analysts noted that exchanges have historically raised margins following sharp contract declines, surges, or extreme volatility, but this move, coming after a rapid crash, further underscores its role as a risk firewall.
Exchange Intervention The exchange stepped in urgently after gold and silver prices suffered their largest single-day declines in decades. On January 30th local time, CME announced it would increase margin requirements for COMEX gold, silver, and other precious metal futures contracts.
In a statement, CME said the adjustment was based on a "normal review" of market volatility, aimed at ensuring sufficient collateral coverage, and will officially take effect after the close of trading next Monday, February 2nd.
According to the latest arrangements disclosed by CME: For gold futures, the margin rate for non-high-risk accounts will be raised from 6% of the current contract value to 8%; for high-risk accounts, the rate increases from 6.6% to 8.8%. For silver futures, the margin rate for non-high-risk accounts will be raised from 11% of the current contract value to 15%; for high-risk accounts, the rate increases from 12.1% to 16.5%. Furthermore, margin requirements for platinum and palladium futures were also raised simultaneously.
This means investors participating in precious metals futures trading will need to commit more cash or equivalent assets to maintain positions of the same size.
CME stated that this adjustment was made following a routine assessment of market volatility.
In recent times, the precious metals market has experienced rare and severe turbulence. Wind data showed that by Friday's close, spot gold had crashed 9.25% to $4,880.034 per ounce, after plummeting as much as 12.92% intraday to a low of $4,682 per ounce; spot silver saw an intraday plunge of 35.89% before closing down 26.42% at $85.259 per ounce; COMEX silver futures tumbled 25.5% to $85.25 per ounce, but still registered a cumulative gain of 20.10% for the month of January.
Industrial metals were not spared either, with LME copper falling below $12,850 intraday on Friday, marking a maximum decline of nearly 5.7%, before closing down 4.02% at $13,070.5 per ton; LME tin closed down about 5.7%, while LME aluminum and LME nickel both fell over 2%.
Analysts pointed out that exchanges have historically raised margins following sharp contract surges, declines, or extreme volatility, but this move, implemented after a rapid crash, reinforces its function as a risk firewall. From a market structure perspective, increasing margins does not directly determine price direction but profoundly impacts the composition of participants and the shape of liquidity.
Earlier this week, CME had already raised margins for silver, platinum, and palladium futures due to rising prices.
In the domestic market, the Shanghai Futures Exchange had previously also increased the price limit bands and margin ratios for precious metal contracts.
Reasons Behind the Epic Crash? From a news perspective, the confirmation of the next Federal Reserve Chair nominee acted as the "trigger" for this round of sharp declines.
On the 30th, US President Trump announced via social media the nomination of former Federal Reserve Governor Kevin Warsh as the next Fed Chair. This nomination still requires approval from the Senate.
Analysts believe the nomination of the relatively "hawkish" Warsh is extremely detrimental to gold and silver, as he is seen as a candidate who can "re-anchor the Fed's credibility."
Claudio Wewel, FX Strategist at J. Safra Sarasin Sustainable Asset Management, noted that as the new chair nominee leans towards "hawkish" monetary policy, this clearly shattered previous market expectations, leading to a significant strengthening of the US dollar index and a simultaneous weakening of dollar-denominated gold and silver, creating a typical seesaw effect of "strong dollar, weak gold/silver."
Krishna Guha, Vice Chairman of Evercore ISI, stated that the market is trading based on a "hawkish Warsh" scenario.
Additionally, overly crowded market positioning was another reason for the precious metals crash.
Bank of America's January fund manager survey showed that going long gold was the most crowded trade in global markets. Demand was so strong that the gold price had at one point exceeded its long-term trend line by 44%, a premium level not seen since 1980.
Furthermore, according to Renaissance Macro Research citing Consensus data, the silver sentiment index, based on a weekly survey of brokerage strategists and newsletter writers, had surged to its highest level since 1998.
In a market with highly concentrated positions and leverage quietly accumulating beneath the surface, this was sufficient to trigger a sharp single-day decline. Alarmingly, similar one-way bets are appearing across various markets.
Matt Maley, Equity Strategist at Miller Tabak, said the market action was simply insane, and "a good part of it is probably 'forced selling.' Silver has recently been one of the hottest assets for day traders and short-term traders, and a fair amount of leverage had built up in the market. After Friday's crash, margin calls were appearing one after another."
Katy Stoves, Investment Manager at UK wealth management firm Mattioli Woods, suggested the recent market volatility likely reflects "a market-wide reassessment of concentration risk."
Other traders pointed out that after silver prices recently hit record highs, many speculative silver positions had substantial profits, and the current decline is primarily due to the realization of those gains.
Comments