Another run-up in silver?

Silver, daily, October 2010 to April 2012, CME margin changes noted as (digit)

Silver, daily, October 2010 to April 2012, CME margin changes noted as (digit)


Last year we saw the emergence of bubble like pricing in Silver; the chart above shows the spot price of Silver over the last 18 months, and the sharp run-up in prices culminating in a high on April 29th – but what caused the steep drop in prices?

The Chicago Mercantile Exchange (CME) allows both producers and consumers of a commodity to trade financial derivatives known as “futures”. CME sets the prices for these instruments (margin requirements) across a couple of broad dimensions.

In response to bubble like price, CME announced three sharp hikes in margin requirements, on March 25th (1 on the chart above), April 26th (2 on the chart) and May 1st (3). The result? Between April 29th and May 5th silver dropped sharply in price, losing lost 24% of it’s value in less than one week.

And so it goes. Until February 10th of this year (4), when CME lowered margin requirements for silver, an action it repeated yesterday (5). Are further reductions upcoming? Hopefully, as lower margin requirements are a plus for the silver market. Yesterday we saw silver prices modestly rise, about 1%. Nothing like the run up of March to April of 2011, when silver prices rose sharply, sometimes 3% or more in one day. But I can’t help but view CME’s lowering of margin requirements as anything but a plus for the silver markets.

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