Breaking Wall Street Market News & Reports

The rocket-like performance of silver in recent days apparently prompted the parent of the New York Comex market to boost margin requirements on silver futures a move that fueled a steep sell-off in precious metals after regular trading ended.

Near-term silver futures, which closed at a new 30-year high of $28.90 an ounce in regular trading, up $1.47 for the day, dived as low $26.42 in electronic trading after the Comex’s parent, CME Group, announced the higher margins. Margin is the amount an investor must put up to trade a futures contract. There also are minimum margin requirements to hold a contract. CME raised silver margins by 30%. The maintenance margin, for example, jumped to $6,500 per contract from $5,000. Margins typically are raised on futures contracts in times of extreme volatility. Silver prices had soared 23% just since Oct. 25 as money continued to pour into commodities in general.

The question now is whether the margin move will drive more investors out of the silver market. In electronic trading Tuesday evening the price had recovered somewhat, to about $27.40 an ounce, but that still was down 5.2% from closing high in the regular session. Gold, which rose as high as $1,423 an ounce in regular trading before pulling back to close at $1,409.80, up $7 for the session, fell as low as $1,382 in electronic trading. The metal was recently trading at about $1,399.

It may not help the metals if their archrival, the U.S. dollar, continues its recovery. The DXY index of the dollar’s value against six other major currencies was up for a fourth straight session in Asian trading early Wednesday.

On a technical basis, there’s nothing surprising about that; we’ve seen similar moves before and I expect to see them again.  The overall trend has been upward with higher highs and higher lows.  The market seems to find a strong bid at progressively higher levels even after sharp corrections.  Nothing too disturbing there and nothing to indicate that primary trends are not still intact.

What was noteworthy was the catalyst for the pullback, specifically an increase in margin requirements for silver futures contracts.  There was no comparable change in gold futures margin but as often happens in markets there was instantaneous contagion from silver to gold notwithstanding the different circumstances.  Again, no surprise that the markets correlate to a great extent even when the news only affects one market or the other.

This is an opportunistic time to get into Silver and Gold as the Margin Requirement had instilled fear and forced traders to sell and lock in their gains. I’m still long on Silver. SLV is the best way to trade it. Buy on the dips.

Tags: Commodities, futures, Margins, NY Comex, silver, slv

This entry was posted on Wednesday, November 10th, 2010 at 10:20 am and is filed under Commodities, Contributors, Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.