Gold loses more shine after CME margin hike

Gold fell more than 1% on Thursday, extending the previous session's losses, after the CME Group raised trading margins by the most in over two and a half years to curb volatility in bullion that had surged to dizzying heights.

Spot gold dropped by more than 4% on Wednesday, its biggest drop since December 2008, as investors liquidated positions after the precious metal surged nearly 35% this year to a record high above USD 1,911 on Tuesday.

CME increased margin requirements on its gold futures contract by 27%, the second hike in a month, following similar moves by the Shanghai Gold Exchange and Hong Kong Mercantile Exchange earlier this month.

Data suggesting the US economy was facing a slowdown instead of a recession also took the shine off safer assets like gold.

"A lot of hot money has entered the complex and the rally was done too much in too short a time," said David Thurtell, an analyst at Citigroup.

"Last 24 hours there was definitely profit-taking. With the margin hike, if speculators don't have the money to pull out as extra margin they'll just cut their positions. That contributed to the liquidation."

Spot gold slipped as much as 1.3% to USD 1,728.59 an ounce, before recovering some ground to trade at $1,739.80 by 0617 GMT. On Wednesday, bullion dropped 4.3%, its biggest daily drop since December 1, 2008.

US gold fell 0.8% to USD 1,742.90, after dropping 5.6% on Wednesday, the steepest daily drop since March 2008.

Helping fuel Wednesday's sell-off was data showing new orders for long-lasting US manufactured goods rose more than expected in July, offering hopes that the ailing economy could dodge another recession and boosting risk appetite across markets.

Before this week's drop, bullion had surged more than USD 400 since July and scored consecutive record highs as a struggling US economy and crippling debt crisis in Europe boosted gold's safe-haven appeal.

Spot gold has lost more than 8% from its all-time high. The price surged nearly 10% in the six-day climb before the decline.

Not safe anymore?

"People always refer to gold as safe haven. When we introduce volatility to the equation, it doesn't seem so safe anymore," said a Singapore-based trader, but added that gold's luster looks intact.

"Many leveraged longs are going to leave it alone for a while. And when prices come down like this, it might be a buying opportunity for real money account like central banks."

Technical charts suggest that a medium-term uptrend for gold is intact even after the sharp drop over the past two sessions, with a rebound likely to push it to USD 1,784, said Reuters market analyst Wang Tao.

Holdings in the SPDR Gold Trust dropped 2.2% on the day to 1,232.314 tonnes by August 24, its lowest in more than a month and down 6% from a one-year high of 1,309.922 tonnes hit on August 8.

ANZ has raised its forecast for gold prices, expecting prices to peak at USD 2,200 in the second quarter of 2012, from a previous forecast of USD 1,800.

"The substantial revision has been propped up by an unusual lack of support for the US dollar under the current uncertain financial market conditions - effectively channelling stronger than normal safe-haven flows to gold," said ANZ analysts in a research note.