An extraordinary sell-off in gold and silver prompted the CME Group to move decisively on Friday, raising margin requirements for COMEX metal futures and signalling that exchanges are prepared to squeeze leverage to protect clearinghouses. The exchange increased non-high-risk margin on gold futures from 6% to 8% (high-risk accounts to 8.8%), and on silver from 11% to 15% (high-risk to 16.5%), with the changes taking effect after markets close on Monday, February 2. Platinum and palladium margins were raised in parallel, and CME described the steps as part of its routine volatility review aimed at ensuring sufficient collateral coverage amid exceptional price swings.
The moves followed one of the most violent sessions for precious metals in decades: spot gold suffered an intraday drop of nearly 13% and closed down about 9.3%, while spot silver plunged as much as 36% intra‑day and finished the session some 26% lower. COMEX silver futures fell roughly 25.5% on the day, even after a month in which the metal had posted substantial gains; other commodity markets were not spared, with LME copper and other industrial metals posting multi‑percent losses in the same session. Chinese domestic venues also tightened rules, with the Shanghai Futures Exchange expanding price limits and raising margin ratios for precious‑metals contracts, highlighting the global and cross‑market nature of the stress.
Market participants pointed to two intertwined causes: a sudden re‑pricing of the US policy outlook after President Trump nominated Kevin Warsh as the next Federal Reserve chair, and an unwinding of overcrowded, leveraged long positions in precious metals. Warsh is widely seen as a candidate likely to pursue relatively hawkish policy, which would strengthen the dollar and raise real yields — factors that typically weigh on dollar‑priced safe‑haven assets such as gold and silver. At the same time, surveys and positioning indicators showed record or near‑record bullishness in gold and silver, creating a fragile market structure in which heavy leverage magnified price moves and prompted margin calls and forced selling.
Raising margins after a sharp price collapse is designed to bolster the clearing system by reducing the probability of under‑collateralized breaches when volatility spikes. But the decision also has immediate market consequences: higher margins raise the cash cost of maintaining positions and can accelerate deleveraging by marginal players, reducing liquidity and widening trading costs. Exchanges have historically adjusted margins in response to both sharp rallies and collapses, but doing so in the wake of a flash crash underscores their role as backstops of last resort and highlights the limits of market infrastructure in absorbing rapid, concentrated flows.
For investors and fund managers the episode is a reminder that crowded trades can reverse violently when macro expectations shift. The combination of a sudden change in Fed expectations and elevated positioning created a classic squeeze, and the resulting volatility may force a reappraisal of risk models, leverage limits and liquidity plans across funds, brokerages and exchanges. Policymakers and market operators will now face pressure to explain whether the adjustments were timely and sufficient, and whether further steps — such as higher intraday margins, tighter position limits or temporary trading halts — are needed to prevent contagion to related markets such as miners, ETFs and OTC derivatives.
Looking ahead, markets will watch two dynamics closely: whether the Fed‑nomination narrative persists and continues to strengthen the dollar and damp precious‑metals demand, and whether the margin tightening successfully stabilises the market structure without self‑reinforcing deleveraging. If hedge funds and leveraged speculators are forced to cut exposure aggressively, price discovery could remain dislocated and volatility elevated. Conversely, higher collateral requirements could discourage excessive leverage and reduce the probability of repeat flash episodes, albeit at the cost of reduced liquidity for smaller participants.