If you’ve been watching the silver market or have read anything we’ve published in the last week, then you’d know that silver is down over 30% in less than a week. What continues to push prices down? What’s happening to the silver market?
On Wednesday May 4th, the Chicago Mercantile Exchange, which operates the Comex division of the New York Mercantile Exchange, announced yet again that at the end of the business day on Thursday and Monday there would be two separate margin increases. This is the fourth announcement of its kind in thecourse of two weeks.
On Thursday, the “initial” margin required to open new speculative positions in the main 5,000-ounce silver-futures contracts will rise to $18,900 from $16,200, according to a notice released by the exchange.
Additionally, the “maintenance” margin forexiting speculative positions, as well as both initial and maintenance margins for hedger positions, will rise to $14,000 from $12,000. On Monday at the end of the business day, the initial speculative margin will rise again to $21,600.
The speculativemaintenance margin, as well as margins for hedgers, will againincrease to $16,000. To view the CME’s full statement click here.
In summary, this will require an investor with a $100,000minimum margin position to raise an additional $33,000 in capital tomaintain his position. This is the equivalent of a 33% rise in capitalrequired. Over the past two weeks the CME group has raised themargin requirements by 84%.
This means that if an investor has had$100,000 invested in silver contracts, he would now be required tohave $184,000 to hold those same contracts! So an investor has twooptions. First, he can find a way to raise the capital to stay in theposition or second, he can simply sell some of his position. In eithercase, you will at least see a slowing in the market and potentially afurther decline.
On a positive note, we are still seeing good long-term trends.We are continuing to see central banks around the world add gold totheir reserves. According to the IMF, Mexico bought 93.3 metric tonssince January, adding to holdings of about 6.9 tons. Back in Europe,Russia increased its reserves by 18.8 tons to 811.1 tons in March and Thailand also expanded its assets by 9.3 tons to 108.9 tons inthe same month.
This information points to emerging market’s desire to diversifyaway from the dollar in their reserves. With the dollar continuing tofall this week despite falling commodity prices, it is becomingincreasingly evident that the US does not currently have the resolveto puts its fiscal house in order. Until it does we will continue to seethe dollar decline in value and see long-term prospects for preciousmetals.
nice post
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