The CME Group has announced that it plans to impose trading collars for precious metals, meaning that a swing in the gold price of $100 dollars will prompt a five minute halt in trading.
The decision immediately prompted speculation as to why the new rule was being imposed now and whether it meant an unprecedented financial event was just around the corner.
Beginning on Monday December 22, gold trading will halt after an intraday move of $100 dollars from the previous close, while the same rule will be applied to silver after a move of $3 – a total of 8% and 17% respectively.
“Those are tremendous price changes and they certainly would seem to be out-of-reach on an intraday basis anyway,” writes the TF Metals Report. “So why the sudden rush by the CME to institute the collars? What do they know that we don’t know? What are they afraid of?”
The article goes on to speculate that the move could be a sign that banks are preparing to exit the commodity business altogether, allowing paper metal to float freely on the market.
Zero Hedge also speculates as to why this mechanism is being imposed at this time.
“One wonders why now, and what does the CME know about upcoming volatility, or lack of liquidity, in the precious metals space that nobody else does.”
Recent dollar strength has kept the price of gold hovering around its 100-day moving average of $1,234 dollars per ounce, but the precious metal has risen by 7% since hitting a four year low in early November.