Explanation

Step 1: Calculate maintenance margin per contract

• Initial margin per contract: $14,000
• Maintenance margin = 75% × $14,000 = $10,500 per contract

Step 2: Calculate total margin requirements

• Total initial margin = 5 contracts × $14,000 = $70,000
• Total maintenance margin = 5 contracts × $10,500 = $52,500

Step 3: Calculate maximum loss before margin call

• Maximum loss allowed = Total initial margin - Total maintenance margin
• Maximum loss = $70,000 - $52,500 = $17,500

Step 4: Calculate price drop per contract

• Contract size = 100 troy ounces
• Total position size = 5 contracts × 100 ounces = 500 ounces
• Price drop per ounce = Maximum loss ÷ Total position size
• Price drop per ounce = $17,500 ÷ 500 = $35

Step 5: Verify

• A $35 drop per ounce × 500 ounces = $17,500 loss
• This exactly equals the maximum loss allowed before margin call

Therefore, a $35 drop in the gold futures price will trigger a margin call.