“Last year was crazy, and then we said we have to do something,” Miguel Vias, the director of metals products at CME, said.
In 2013 gold prices fell 28% with silver falling 36% representing the largest slumps for both metals in more than three decades. After bullion fell to a 34-month low in June, the yellow precious metals saw its volatility reach the highest levels since 2009.
CME, considering applying daily price limits on gold and silver, are looking to mellow out the wild volatility seen in the precious metals markets over the last few years. There is precedent for this, as CME currently has limits for various futures contracts across commodities, like energy, agriculture, as well as as financial products. As yet, it has not introduced limits on precious metals.
CME’s major concern is the high level of buying and/or selling and the associated price fluctuations. “We don’t have price limits in gold and silver. That’s something that we are looking into,” Vias said.
The suggestion comes as allegations about high-speed frequency traders rigging markets via dark pools and off-book exchange trading. One of CME’s major concerns are the trading programs that could push the market higher or lower all on their own.
Through the first four months of 2014, COMEX gold futures volume decreased 10 percent from one year ago. Turnover in silver contracts increased about 7.5 percent.
Gold and silver futures are the most-traded commodity contracts behind crude oil and other energy products.
The frequency of wild price movement has only increased in recent years and so the exchange introduced circuit breakers in order to prevent cascading stop orders that could make price movements larger.
But not everyone supports setting limits on price movements.
“I think the breaks in trading are good, but I wouldn’t support fixing price moves,” said one U.S. trader.
Other analysts, like Bix Weir, claim this is a new stage in gold and silver price manipulation.
The moves by the CME could be seen as evidence that big movements are coming in the gold markets, what with geopolitical turmoil and emergency Fed meetings taking place, as happened this week. CME runs the COMEX, and many speculate the COMEX is actually short gold and silver, and thus any movements to the upside could hurt it, causing it to default on its obligations.
At any rate, the decision seems to come on the heels of the CME acknowledging that markets are manipulated via high speed computer programs.