PRECIOUS-Gold, silver fall further as CME margin hike stokes selling

By Noel John

Feb 2 (Reuters) - Gold and silver prices dropped on Monday as increased CME CME.O margin requirements added to the selling pressure following last week's selloff sparked by Kevin Warsh's nomination as the incoming Federal Reserve chair.

Spot gold XAU= was 3.2% lower at $4,708.19 per ounce by 1008 GMT, recovering from nearly a 10% fall earlier in the session. Bullion shed more than 9.8% on January 30, in its sharpest one-day drop since 1983.

Gold has lost about $900 since hitting an all-time-high of $5,594.82 on January 29, erasing most of this year's gains.

U.S. gold futures GCcv1 for April delivery were down 0.3% to $4,730.40/oz.

Spot silver XAG= lost 3.4% to $81.65, recovering from a fall of 15% earlier on Monday. It has shed about 33% since notching up an all-time-peak of $121.64 last week.

The CME announced hikes in margins on its precious metal futures on January 30 and said the changes were set to take effect after market close on Monday.

"The increase in margin requirements makes holding speculative positions less appealing now and this will also force a lot on the retail side of the market who do not have the extra liquidity to sell positions," said Zain Vawda, analyst at MarketPulse by OANDA.

"It is definitely creating a sort of feedback loop where as prices drop, more traders will face margin calls leading to more selling and even lower prices," Vawda added.

The dollar index .DXY edged higher last week after U.S. President Donald Trump named former Federal Reserve Governor Warsh as his Fed chair pick, making dollar-priced bullion more expensive for buyers overseas.

While investors expect Warsh to favour rate cuts, they anticipate he will tighten the Fed's balance sheet, a move typically supportive of the dollar.

Barclays said in a note on Monday it expects rate cuts, fiscal expansion, quantitative easing, fiat debasement and de-dollarisation to likely keep investment demand firm for gold.

Spot platinum XPT= fell by 4.3% to $2,070.64 per ounce after hitting a record $2,918.80 on January 26, while palladium XPD= shed 2.1% to $1,662.68.