Gold and silver extended losses on Monday after the CME Group increased margin requirements for metal futures, a move that follows a sharp selloff at the end of last week tied to U.S. President Donald Trump’s nomination of Kevin Warsh to be the next Federal Reserve chair. The tighter margins, set to take effect after Monday’s market close, compounded forced liquidations and pressured already volatile bullion markets.
Spot gold recorded a fresh decline of 3.6% to $4,686.51 per ounce by 05:04 GMT, coming off a dramatic fall the previous trading day that had been its steepest one-day drop since 1983. U.S. gold futures for April delivery were down 0.8% at $4,707.60 per ounce. Spot silver, which plunged 27% in the prior session in its worst daily drop on record, lost a further 6.7% to $78.96 an ounce on Monday.
The CME Group announced on Saturday that it would raise margins on its metal futures contracts. Under the changes, COMEX gold futures (1oz) margins are being increased from 6% to 8%, while COMEX 5000 silver futures (SI) margins are being raised to 15% from 11%. Platinum and palladium futures will also see higher margin requirements, though specific percentage changes for those contracts were not specified in the announcement.
Higher margin requirements typically require traders to post more capital to hold positions. Market participants said that the larger capital burden can reduce speculative participation, sap liquidity and prompt traders to unwind positions, adding downward pressure to prices.
"The Warsh nomination, whilst likely being the initial trigger, did not justify the size of the downward move in precious metals, with forced liquidations and margin increases having a cascading effect," said Tim Waterer, chief trade analyst at KCM.
Analysts and traders reported that leveraged investors were being wiped out, forcing them to sell other assets to meet silver and gold margin calls. The stresses in commodities markets coincided with broader equity weakness: Asian stock markets were sliding and U.S. equity futures fell about 1%.
Market expectations for policy were a factor in the initial shock to bullion. Waterer noted that while Warsh may still move to lower rates after taking office, he is not the "ultra dove" many market participants had priced in. Waterer added that Warsh’s policy record has been generally supportive of the dollar and, by inference, negative for gold given his focus on inflation and scepticism toward quantitative easing and large Fed balance sheets.
Investors still expect at least two rate cuts in 2026. Non-yielding bullion typically fares better in environments with lower interest rates, a dynamic underpinning the longer-term bullish thesis cited by some analysts despite the recent rout.
The steep selloff interrupted a record-breaking run higher for precious metals. Gold had reached a record high of $5,594.82 an ounce on Thursday and silver had set an all-time peak at $121.64. Despite the recent volatility, analysts at J.P. Morgan said they remained confident the rally would persist over the medium term.
"We remain firmly bullishly convicted in gold over the medium-term on the back of a clean, structural, continued diversification trend that has further to run amid a still well-entrenched regime of real asset outperformance vs paper assets," J.P. Morgan analysts said in a note.
Other industrial metals also saw sharp declines. Spot platinum fell 4.4% to $2,067.06 per ounce after earlier reaching a record $2,918.80 on January 26, while palladium dropped 4.6% to $1,620.18.
Key takeaways
- Margin hikes by CME Group on metal futures have tightened capital requirements - pressuring speculative participation and amplifying price declines in gold and silver.
- Leveraged investors were forced into liquidation, driving sell-offs across precious metals and contributing to broader equity weakness in Asian markets and a fall in U.S. equity futures.
- Despite the abrupt correction from record highs, some analysts maintain a medium-term bullish stance on gold based on diversification trends and relative performance of real assets versus paper assets.
Risks and uncertainties
- Higher margin requirements could further reduce liquidity in metal futures, increasing volatility and forcing additional position unwinds - impacting traders and speculative-focused funds.
- Policy expectations around the Fed - including the market’s reassessment of Kevin Warsh’s likely approach to rates and balance sheet policies - could continue to influence dollar strength and bullion prices.
- Continued forced selling by leveraged investors could spill into other asset classes if margin calls are not met, affecting broader market stability.
The market now faces the near-term challenge of absorbing the margin changes while participants reassess positioning after an unusually fast and deep move in precious metals prices. How traders and funds respond to the increased capital demands will be a key driver of liquidity and price direction in the coming sessions.