Gold futures plummeted and U.S. equity markets soared on Thursday as risk aversion declined significantly on Wall Street.
After hitting another new all-time record high of $1,817.60 in overnight trading, COMEX gold futures – per the December contract – settled lower by $32.80, or 1.8%, at $1,751.50 per ounce. Following the COMEX close, the yellow metal extended its losses, reaching $1,734.50 in electronic trading.
A key catalyst for gold’s decline was the CME Group’s decision to increase margin requirements on the yellow metal. CME, which owns the COMEX, raised initial margin requirements to trade gold by 22% to $7,425 from $6,075 per 100-ounce contract. The exchange operator also lifted maintenance margins by 18%, to $5,500 from $4,500.
Weakness in gold, one of the few asset classes to rally in recent weeks, helped fuel risk seeking behavior on Wall Street. The Dow Jones Industrial Average (DJIA) climbed as much as 432.41 points, or 4.0%, to 11,152.35 at approximately 2:30pm ET.
The Dow has now swung at least 4% in each of the past four trading days, as volatility and uncertainty have gripped financial markets.
The broad-based rally in equities helped support gold stocks, which posted only fractional losses despite the large drop in the yellow metal. The AMEX Gold Bugs Index (HUI) fell by 0.6% at 564.20 in afternoon trading.