CME Hikes Silver Margins By 17%: 4th Hike In 8 Trading Days

Zero Hedge ^ | 5/4/11 | Tyler Durden

[Nachum]

Nobody could have foreseen this. Nobody. At this point there is nothing left to comment on what is a concerted action to "mitigate" any and all risk in the commodity market but could as well be classified as executive order 6102.5. While we were joking before that soon one will have to post more cash than an silver contract is worth, we are now forced to reevaluate this sarcasm.

[Nachum]

So, if you wanted to destroy the commodities market in Silver, this is how you make it impossible to trade.

[Mamzelle]

Would somebody mind explaining this? It kind of went over my head. Silver just went down.

[Cicero]

Too bad they don’t have any Hunts around they can throw in jail!

[Wingy]

When you want to take down a market, you make it harder for the buyers. They just raised the margins on futures contracts. That means it costs more to buy a contract. This is the fourth time in the last week they have raised the price of doing business, so yes, silver is going down. They have to protect JP Morgue who was about to take a big hit, due to the rising price of silver.

[Wingy]

Oops! My mistake. It's not the fourth increase, but they just announced a Fifth increase in 8 days! This means that instead of buying a 5000 ounce contract for about 11% of the full price you need 33%+. this will certainly tamp down those pesky buyers. I'm thinking the Fed is about to make a move soon...

[screaminsunshine]

Brother can you spare a Mercury Head Dime?

[Vince Ferrer]

Would somebody mind explaining this? It kind of went over my head. Silver just went down.

And they need it to stay down, which is why they continued hiking the margin. JP Morgan and three other banks are being seriously hurt by the rise in silver, and need to engineer a correction. However, the silver fundamentals are strong, and they are on the wrong side of a bull market. They need to get out of a lot of short contracts, and they need time. The summmer months are typically slow for silver. If they can drive down the price into May, and then survive the summer, they can use the time to buy up their short contracts. If the price pops right back up, they are going to lose a lot of money.

[screaminsunshine]

Just try to get ahold of some.

[FlyingEagle]

Silver went hyperbolic in both directions within the last week. JPM is so short they had to squeeze back - margins as the tool.

[FlyingEagle]

U R right. Silver price stabilizes, get back in. Triple deficits, QE, and tanking dollar are forces of economy that will overcome in the longer haul.

[Vince Ferrer]

So, if you wanted to destroy the commodities market in Silver, this is how you make it impossible to trade.

They will try, but two things they can't touch. First, really big buyers, like China or large hedge funds, do not need margin, they can just pay cash for physical silver. That's what they want anyway. Secondly, small investors have been investing in physical silver like silver eagles and bars, which are not affected by this unless the owner attempts to sell.

Markets exist to foster trust, and when there is no trust, people will find new markets. Expect a massive move by individual investors away from ETFs and stocks to physical silver.

[WackySam]

IMHO, they’re manipulating the market down to provide a easier exit for those banks who hold massive short positions.

[Graneros]

I wish I had a ton of money for when this stabilizes. I can’t see it going much lower with the exception of when QE3 begins. After that my hunch is it will start a steady climb once again.

[Nachum]

I wish I had a ton of money for when this stabilizes

Yep. When it bottoms out, Silver is going to be a steal. I like it.

[meyer]

When it bottoms out, Silver is going to be a steal.

At what price would you consider it a steal?

[stockpirate]

I didn’t see a 33% figure mentioned, I thought they took it to 11% where it used to be 10.

[stockpirate]

"Remember when earlier we said the CME had hiked silver margins for the 4th time in 8 days? We lied. In fact, what the CME did was to hike margins for the 4th (effective May 5) AND 5th times (effective May 9). That's right, dear reader, in one release, the CME has performed two concurrent margin hikes, which means today's action is the 5th margin hike in 8 days, a previously unheard of event! As of May 9th, the initial margin is $21,600, or 11% of the contract value, while the maintenance is $16,000. This is nothing short of sheer panic at the CME. At this point we can only wonder if the FDR-style precious metals confiscation executive order will come by way of the CME or the FBI. And for everyone asking, below is the chart of recent CME margin hikes in silver."

[Nachum]

At what price would you consider it a steal?

Good question. I think it is undervalued now. The problem is that the traders have been forced off the market by these margin rules. I think we can assume that when the price stabilizes over a number of days near on set level, then that would probably be a good time to come back in.

[Wingy]

Sorry, you are correct. I was looking at the chart and I saw the line north of 25% but short of 35%. I guess I was reading it wrong. Thanks for setting me right.

[hinckley buzzard]

You can buy as many silver eagles as you want, for about 43 dollars a copy, right now from Kitco. You can buy a 100 oz bar for 41 dollars an ounce. No problem.