Monday, May 2, 2011

Another margin increase at the CME

Silver dropped in early Sunday trading from ~$48 to $42.20 in about 10 minutes!  I read later that the CME raised it's margin requirements, but isn't that for US trading?  The drop was when Silver opened for Asian trading...?

Anyway, here is a daily graph of Sunday/Monday Comex price action:

In any case, if your long the physical Silver, it's nothing to worry about... stay long wait for $100 then start thinking about your exit strategy...(that is, if your going to exit the Silver trade)  A lot depends upon what the US Government is going to do with it's fiscal policies...

Here is a CNBC article from Lori Spechler regarding the increase in Silver margins at the CME

Silver margins are going up—again. As the CME tries to keep pace with the explosive silver rally, the exchange has now hiked margin requirements eight times in the past twelve months.
While increased margins are more of a reaction to price and volume than a meaningful intent to control prices, market watchers say that increasing margins has sometimes caused investors to reduce positions and deleverage in order to meet those higher margin requirements.
Despite today's sell-off, it seems unlikely that rising margins are capping or, impacting this particular silver rally in any meaningful way. One market analyst calls for a 30 percent hike in CME's margin requirements to cool the market. But, raising margins at the CME has become a smaller part of the global picture.
As of Friday, April 21st, 2011, open interest in silver futures was 149,899 contract, or less than half of what it was in 1976. According to a CME spokesperson, in December of that year open interest in COMEX Silver futures contract with the same basic specs as today's contract was 427,749 contracts.
Where has all the open interest gone? In the globalized financial system there is more competition for over-the counter business as well as futures business from India to Japan to Dubai. And Silver ETFs including the iShares Silver Trust [SLV  42.83    -4.05  (-8.64%)   ] have commanded a significant market share.
Carlos Sanchez, CPM Group Director of Commodites Management agrees that the CME is a smaller percentage of the open interest globally. And, he says investment style has changed. Sanchez attributes some of the decrease in open interest at the CME today versus 1976 to the nature of market, "Investors were longer term back then, now, investors trade for hours or seconds." Sanchez sees the rally continuing in the near term with a push above $50 an ounce. "I don't think it will stop", he says "because there are so many factors supporting silver prices."
Increased margin requirements effective after the close of business on Tuesday, April 26, 2011.

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