Gold-Silver Price Crash: Alert for gold-silver investors, exchange will increase trading margin from February 2; These investors will be affected the most
Gold Silver Price Crash: A new turn is now being seen in the global commodity market amidst the huge fall in the prices of gold and silver. After the biggest fall in COMEX in decades, CME Group has decided to increase margins on futures trading of precious metals like gold, silver, platinum and palladium. This decision has been taken in view of the increasing volatility and risk in the market and will come into effect after the market closes on Monday.
Increase in gold and silver margins
According to CME Group, gold margin for general risk profile will be increased from 6% to 8%. In another category it will increase from 6.6% to 8.8%. Similarly, the margin in silver futures has been increased from 11% to 15% and in other profiles from 12.1% to 16.5%. Margin increase has also been announced in platinum and palladium futures deals. The exchange says the move has been taken after “regular review of market volatility” to ensure adequate collateral coverage.
Pressure will increase on small and retail investors
This simply means that now to trade in the futures market, investors will have to deposit more security money than before. This will especially increase the pressure on small and retail investors, who may lack additional cash. Increasing margins may reduce liquidity in the market and may intensify short-term fluctuations. Usually the exchange increases the margin when there is a lot of rise, fall or volatility in the prices of an asset.
The recent decline in prices is historic
Talking about prices, the recent fall has been historic. Registering the biggest single-day fall since the 1980s, silver prices fell by nearly 30% and slipped below Rs 3 lakh per kg. While on Thursday, silver was at a record level of Rs 4 lakh per kg, on Friday it came down to around Rs 2.91 lakh per kg on MCX.
Heavy fall in gold also
A huge fall was also seen in gold. Due to weakness in global markets, strength of US dollar and strong profit booking by investors, gold prices fell to around Rs 1.5 lakh. In India, 24 carat gold was recorded at Rs 1,50,849 per 10 grams and 22 carat gold was recorded at around Rs 1,91,922 per 10 grams (these prices do not include GST and making charges).
This combination of sharp decline in prices and increase in margins indicates that the precious metals market may remain volatile in the coming days and investors will need to be more cautious.
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