Sunday, May 1, 2011

Silver Streak Derailed By Margin Hikes

A Sunday Vertical Drop of Gold, Silver, Platinum and Palladium
By EconMatters
I was fully expecting a non-eventful Sunday afternoon when out of no where, precious metals started their contest of vertical drop, as shown int the following live charts from as of Sunday, May 1, around 7:00 pm EST.

As expected, silver is the undisputed champion, dropping about 10% from the previous day's close, gold, platinum each went down about 7.5%, while palladium lost about 2%.

For now, there does not seem to be any significant event that could prompt such a move in precious metals. So, my best guess is that this Sunday sell-off is most likely related to the recent margin hikes by CME and MF Global that finally took their toll on the Silver market, forcing some big players to liquidate positions triggering a cascading stops to be executed.

According to Inside Futures, MF Global implemented a 175% margin increase over the CME's recent 9% margin hike. Moreover, Bloomberg reported on the evening of Sunday, May 1 that the CME imposed another increase of the initial margin by 13% to $14,513 per contract from $12,825, to take effect after the Friday close. Margins were $4,250 a year ago.

Such a huge margin increase typically will trigger a mass liquidation and reduce traders' participation in the silver market, which would also trigger sell offs in other commodities. Crude oil and copper were both traded modestly lower, partly responding to the movement in precious metals.

What we are witnessing this evening in the Globex market and early Asian trading is stunning even for the always volatile Silver Market.  With the US Dollar up ONLY one pip [0.01 on the Dollar Index], Silver is down over 9%.  Gold has so far has only been hit for 1.5%.  The behaviour of out criminal bankers at the CRIMEX can only be described as outrageous this evening.

This evening's swan dive in Silver had been expected by me when Silver reached $37 in early March.  That it has come here as Silver sniffed $50 an ounce last week is not shocking in and of itself, but the brutality of the take down is quite remarkable none-the-less.  At it's $49.77 peak on Monday last week, Silver was 80% above it's 200 day moving average.  And when considering it was ripe for a correction when it reached just 40% above it's 200 day moving average, the elevator shaft drop here should surprise no one.

I have preached caution with regards the Silver Market since mid-march, and was because a moment like this was inevitable as the market grew more unstable with each percentage move above the 200 day moving average.  Though the fundamentals of the Silver market certainly support higher prices [much higher] no market goes straight up.  Silver will likely be very volatile in the near-term as the Bulls and Bears slug it out now.  This might be best viewed from the sidelines until your targets are hit.

I found this commentary at the bottom of Ed Steer's blog, Gold and Silver Daily, on Saturday morning and had planned to develop a post of my own supporting this view...but the Silver market beat me to it.  It is really quite to the point that Silver was due this take down...nice call:

Here is a contrary view on silver from a serious PM investor. Longs in May COMEX Silver Flee April 29th, 2011 The daily CME report on metal future products has come out — PG62 Daily Bulletin #82 for April 28, 2011 — and shows that a pathetic 2,143 positions remain open in the May 2011 COMEX silver futures contract going into first delivery notice. That represents a theoretical 10,715,000 ounces to be delivered in what is usually one of the busiest delivery months for silver. This remaining open interest is quite a bit less than even the most pessimistic estimate would have predicted and utterly destroys any argument that longs are somehow in a position to, or capable of, squeezing the available supply of silver on the COMEX. Watch the excuses now start to pile up about how JP Morgan and the rest of the cabal forced the longs out of the May contract. Or how the longs in May COMEX silver still have the upper hand and will be holding evil Blythe for ransom once again to settle contracts for cash at a huge premium to the market. But who knows, maybe Blythe has already paid another 80% premium (around $85 per ounce) to close out all the naked short May silver contracts held by JP Morgan? Unfortunately it appears that we are now in a late-stage move on the back of hot money speculation with a bit of periodic help from bigger silver bulls like Eric Sprott and the Internet mobs with their Don Quixote-like attempts to “crash JP Morgan” one roll of silver American Eagles at a time. Of course the background support of a sickly dollar and strong gold along with high commodity prices is definitely a big part of this as well, but these easy conditions for silver will not last forever. While the price action warrants the possibility of further upside, even significantly so (to say $60-70 silver by the mid-June time frame), the forthcoming correction could be absolutely brutal. Watch for further spiky moves with a possible intra-day reversal range of as much as $7-10 to mark the final exhaustion. That said, a rational market predicated on longs squeezing this market until the silver supply is bled dry would absolutely require an immediate and vastly different evaluation of bullish prospects given the poor showing in the May COMEX silver futures as noted above. That silver prices seem oblivious to the situation so far is a sign of irrationality for which the market may seek severe retribution sooner than later. Caution flags should now be bright red and flying high with defensive positioning and speculative trades to be completed soon. We have already provided some ideas for subscribers and will continue to do so on both the bullish and bearish side. I will say something now for the first time in a long while that the tender ears of some hotheads will probably not abide: we are now reaching a stage in this market where it would be prudent for you to sell some silver. Yes, I mean the physical stuff especially if you’ve never done it before. Look, I’m sure most of you have learned by now how to buy; well, now it may be time to start learning how to sell. No, I don’t mean your core holdings that you hopefully have buried somewhere on your property under several tons (or tonnes outside the U.S.) of concrete. At minimum consider trading some of your silver in for a bit of gold. Especially since a blow-off stage (assuming we are in one) often has gold playing catch up to silver. David Zurbo .

If you ready anything today, READ THIS ESSAY below

Things That Make You Go Hmmm: "My Name Is Grant Williams And I’m a Precious Metals Bug"
As seen on ZeroHedge
Yes, silver is extended. Yes, gold has performed incredibly well. But the point here is to understand WHY you bought them.

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