Gold eases from record high after CME margin hike

Friday, 12 August 2011 00:01 - - {{hitsCtrl.values.hits}}

Reuters: Gold eased on Thursday from the session's record highs after the CME Group raised margins on COMEX gold futures, but turmoil in the global financial markets and fears of slower growth buoyed sentiment.

Spot gold hit an all-time high of $1,813.79, and U.S. gold rose to a record high of $1,817.6 early in the day.

Both eased after the CME Group (CME.O) raised margins on U.S. gold futures by 22.2 percent, driving spot gold down to $1,787.61 an ounce by 2:24 a.m. EDT, off 0.4 percent from the previous close.

U.S. gold traded up 0.3 percent at $1,789.90.

"Historically when margins are raised significantly it tends to cause a bit of sell-off," said Darren Heathcote, head of trading at Investec Australia.

On the relative strength index, spot gold fell to 82.7, suggesting a heavily overbought market, although the index was off its earlier level near 86, the highest since October 2010.

The rapid rise in prices has prompted concern of a price retracement.

"Gold is overbought and things are looking a little risky," said a physical dealer in Hong Kong, who felt gold could fall toward $1,750.

"But as the debt worries linger and the stock market is still on the downside, gold remains a safe haven."

Technical analysis suggested gold could fall to $1,775 an ounce, said Reuters market analyst Wang Tao.

Gold's safe-haven allure has attracted investors fleeing the risk of debt crisis contagion in Europe and slowing global growth. Prices of cash gold have risen as much as 21 percent since the end of June.

Stock market woes have helped push gold's ratio to the S&P-500 .SPX stock index to its highest since 1988. But that ratio remains far below its peaks of 1980 and the 1930s, and gold is still below its inflation-adjusted record near $2,500.

Extreme market turmoil is forcing central banks to shift policy. Central banks in Japan and Switzerland said they would rein in the appreciation of their currencies, while the U.S. Federal Reserve promised to keep rates near zero for at least two more years.

"With the authorities in both Japan and Switzerland announcing intentions to intervene to weaken their currencies, gold remains the last protection against the potential for widescale money printing as governments seek to recapitalize their banks and restimulate their economies," UBS said in a research note.