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Friday, August 12, 2011

Gold Futures Margins Raised

This story was interesting. The price of gold rose sharply recently, probably due to inflation and expectations of future inflation.

The debt ceiling was raised. The Federal budget deficit grows. The Federal Reserve is continuing its "zero interest rate" police, which is an inflationary stealth bank bailout.

Yesterday, the price of gold declined a bit. Why? The COMEX raised margin requirements!

The "margin requirement" is a fixed dollar amount per contract. It would be more sensible for the margin requirement to be a fixed percentage. However, that would reduce the ability to periodically cause the gold price to decline by raising margin requirements.

There are lots of tricks that insiders can use to manipulate gold and silver prices. One trick is periodically jacking up margin requirements.


dc said...

But at some point won't they run out of tricks?
Will trading simply be suspended at that point and gold assigned a fixed value?
Would there then be a grey market in the true value of precious metals?

FSK said...

Actually, if you read the fine print of a futures contract, the exchange has the right to suspend physical delivery and force cash settlement.

If that happened, the "real" price would deviate from the "official" price.

You were able to see that somewhat in Q4 2008. The "official" price of gold was low, but many coin dealers had no inventory.

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