How Will New Gold Price Restriction Rules Impact The Market?

CME Group

Special Executive Report

The Operation of New Rule 589 for Metals Futures and Options

At the commencement of each trading day, new Rule 589 will require the Exchanges to determine initial price fluctuation limits as levels above or below the previous day's settlement price for lead-month primary futures contracts.

There are three primary COMEX metals futures contracts and two primary NYMEX metals futures contracts. These contracts have the largest and most liquid metals central limit order books on CME Globex or are considered separate and distinct stand-alone products on an outright basis. The lead-month contract, as determined by the Exchanges, will typically be a primary contract’s most actively traded futures contract month.

The Exchanges will monitor the price movements of lead-month primary futures contracts in real-time on a daily basis. Price movements in lead-month primary futures contracts will result in triggering events. Triggering events result in monitoring periods, possible temporary trading halts followed by the re-opening of trading, and price fluctuation limit expansions. 

 My view:

The timing of the rules changes is quite curious considering gold and silver have been in a bear market for 3 years.  

If the reader views Appendix C in the link attached, you see that the limit up or down for gold is now $100 per ounce and $3 per ounce for silver.

Limits alone should cause some concern.  Limits this high make one wonder if a large dislocation in the market is anticipated by regulators.