Gold prices shed almost $200 in 3 days; is the rally over?

Spot gold prices tumbled over $193.53 per ounce from their peak of $1,918/oz made on Monday, August 22, and analysts see them heading further south after the CME Group raised trading margins on gold futures by about 27 per cent, the biggest hike in more than two-and-a-half years and the second increase in a month.

Globally, spot gold was down more than $30/oz over yesterday's close, and was trading at $1,724.47 per ounce at 12.45 UAE time (8.45 GMT), its worst performance in more vthan two weeks. Spot gold prices at Comex closed at $1,710/oz on August 8, and then rallied all the way up to $1,918/oz on August 22 before declining to the current levels.

In the UAE, prices of 24ct gold are down more than Dh20 per gm from the peak to Dh207.5 per gm, and 22ct gold is once again retailing at below Dh200/gm level at Dh195.25 per gm, according to prices supplied by the Dubai Gold & Jewellery Group this morning.

The CME’s margin hike, in a bid to curb volatility in gold price, which was surging to irrational heights, is one of the key reasons behind the bullion losing its shine and witnessing its biggest single-day drop since January 1980 – of $104 per ounce on Wednesday August 24, 2011.

Analysts maintain the yellow metal had gone up too high, too fast, with the price of gold up $400/oz since July, before the current decline set in. The CME’s increased margin requirements on its gold futures contracts mirrored similar moves earlier in the month by Shanghai Gold Exchange and Hong Kong Mercantile Exchange.

The market is awaiting a speech by US Federal Reserve Chairman Ben Bernanke, due on Friday, to see if he talks about pumping in further money – QE3 – into the waning US economy.

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