Historic Crash! The Chicago Mercantile Exchange takes emergency action! Significantly raises margin requirements for precious metal futures!

A Historic Crash: Exchanges Act Quickly!

After the prices of precious metals such as gold and silver experienced an epic plunge, the Chicago Mercantile Exchange Group (CME Group) urgently increased margin requirements for precious metal futures. The gold margin rate was raised from 6% to 8%, and silver from 11% to 15%. The new regulations will take effect after the close on next Monday, .

Spot gold on Friday saw its largest single-day decline in nearly 40 years, with a maximum intraday drop of over 12%; spot silver even broke its historical record for the largest intraday decline, plunging over 36% at one point. Analysts pointed out that exchanges have historically increased margins during contract surges, crashes, or extreme volatility, but this move occurred after a sharp decline, further reinforcing its risk firewall function.

Exchanges Take Action

Following the largest single-day drop in decades for gold and silver prices, exchanges acted urgently. On January 30, local time, CME announced it would raise margin requirements for COMEX gold, silver, and other precious metal futures contracts.

CME stated in a release that this adjustment is based on a “normal review” of market volatility, aiming to ensure sufficient collateral coverage, and will officially take effect after the close on February 2.

According to the latest arrangements disclosed by CME:

• For gold futures, the margin requirement for non-high-risk accounts will be increased from 6% of the contract value to 8%; for high-risk accounts, from 6.6% to 8.8%;
• For silver futures, the margin requirement for non-high-risk accounts will be increased from 11% to 15%; for high-risk accounts, from 12.1% to 16.5%.

Additionally, margin requirements for platinum and palladium futures have also been raised simultaneously.

This means that investors participating in precious metal futures trading need to put in more cash or equivalent assets to maintain the same position size.

CME stated that this adjustment was made after routine assessments of market volatility.

Recently, the precious metals market experienced rare and intense turbulence. Data shows that by the close on Friday, spot gold plummeted 9.25%, to $4,880.034 per ounce, with an intraday drop of over 12.92%, touching a low of $4,682 per ounce; spot silver at one point fell 35.89% intraday, ultimately closing down 26.42% at $85.259 per ounce; COMEX silver futures plunged 25.5%, at $85.25 per ounce, with a January increase of 20.10%.

Industrial metals were not spared either. LME copper briefly fell below $13,285 per ton on Friday, with an intraday decline close to 5.7%, ending the day down 4.02% at $13,070.5 per ton; LME tin fell about 5.7%, while LME aluminum and LME nickel both declined over 2%.

Analysts pointed out that exchanges have historically increased margins during contract surges, crashes, or extreme volatility, but this move occurred after a sharp decline, further reinforcing its risk firewall function. From a market structure perspective, raising margins does not directly determine price direction but can profoundly impact participant structure and liquidity patterns.

Earlier this week, CME had already increased margin requirements for silver, platinum, and palladium futures due to price rises.

In the domestic market, the Shanghai Futures Exchange had previously increased the price limit and margin ratios for precious metal contracts.

Why Did It Experience an Epic Crash?

From a news perspective, the announcement of the next Federal Reserve Chair candidate was the “trigger” for this round of plunges.

On January 30, U.S. President Trump announced via social media that he nominated former Federal Reserve Board member Kevin W. Wessel as the next Fed Chair. The nomination still requires approval from the U.S. Senate.

Analysts believe that Wessel, considered hawkish, poses a strong “threat” to gold and silver, as he is seen as someone who can “re-anchor the credibility of the Fed.”

Claudio Wewel, FX strategist at J. Safra Sarasin Sustainable Asset Management, pointed out that because the new Chair candidate leans toward “hawkish” monetary policy, it clearly broke market expectations, causing the dollar index to strengthen significantly. As a result, gold and silver priced in USD weakened simultaneously, creating a classic “strong dollar, weak gold and silver” seesaw effect.

Evercore ISI Vice Chairman Krishna Guha said the market is trading based on “hawkish Wessel.”

Additionally, excessive market crowding is also a reason for the sharp decline in precious metals prices.

A January survey of fund managers by BofA showed that long positions in gold are the most crowded trade globally. Demand was so strong that gold prices once traded at a premium of 44% over the long-term trendline, a level of premium not seen since 1980.

According to Renaissance Macro Research citing Consensus data, the silver sentiment index, based on weekly surveys of broker strategists and newsletter authors, soared to its highest level since 1998.

In markets with highly aligned positions and leverage quietly accumulating beneath the surface, a single-day sharp decline can be triggered. It is also worth noting that similar one-way bets are appearing across various markets.

Miller Tabak stock strategist Matt Maley said the market is “completely crazy,” and “a large part of it might be ‘forced selling’.” Recently, silver has been one of the hottest assets for intraday and short-term traders, with significant leverage accumulated in the market. After Friday’s plunge, margin call notices have been continuously issued.

Katy Stoves, an investment manager at UK wealth management firm Mattioli Woods, said that recent market volatility likely reflects “a comprehensive market reassessment of concentration risk.”

Another trader pointed out that after silver prices hit a record high earlier, many speculative silver positions had already taken profits, and the current decline is mainly due to profit realization.

(Article source: Securities Times)