As of the close of trading, this Friday, tomorrow, the CME Group[ will be lowering margin requirements for their flagship gold and silver contracts. Spec margins will be moving down to $7,975 from $8,800 for opening a contract while maintenance margins will be lowered to $7,250 from $8,000.
For the full sized Silver contract, initial margin requirements will be $11,000 from the current $12,375 with maintenance levels at $10,000 from the previous $11,250.
Volatility has waned somewhat in both metals allowing the computer to mark these margins lower.
The HUI closed extremely poorly today barely managing to maintain itself above all-important chart support near the 210 level. Owners of these beleaguered shares will not want to see this give way, especially to end the week. If it does, get set for even further losses in this bleeding sector in the near future. Where these things are going to find buying support and at what level is very difficult to see right now. Quite frankly, the entire sector has fallen completely out of favor with the mainstream investment world. Only the most die-hard of gold bulls remains holding them.
As mentioned in last night's post and many other posts, those miners which did not HEDGE expected gold production were quarreling against all sound wisdom as they have left themselves completely naked and exposed to downside price risk in the underlying metals. This could have been completely avoided had they instituted some decent analysis in their risk management departments, assuming they even have one.
Keep in mind, any economic data that looks the least bit rosy will feed ideas that the Fed is going to taper sooner rather than later. That will undercut the reason to hold gold or anything gold-related for the time being.
I want to also emphasize that even if the Fed were to taper, say something in the vicinity of $20 billion, that would still leave them purchasing $65 billion/month of Treasuries/MBS. While that is still an extremely significant amount, what the market is looking at is the expected IMPACT ON INFLATION. The way the market currently sees it, if $85 billion/month is not producing any measurable inflation, then any reduction in that amount should further lesson any inflationary impact from the overall bond buying program. That is why gold is paying such close attention to the Tapering/Non- Tapering debate.
I want to reiterate - until the market in general becomes convinced that inflation threats are rising, gold is going to struggle. Also, we will have to see NEGATIVE REAL RATES to bring some serious and concerted buying into the metal. Barring that, it is CONFIDENCE that is going to have to give way for the current bear market in gold to reverse course.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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