Silver Investments Plummet


Silver futures plummeted to their biggest decline since March 1983 after Comex’s owner, CME Group Ltd., raised margin requirements for new speculative positions by 84 percent in less than two weeks, according to according to an InvestmentNews article entitled “Silver investors holding ‘a falling knife.'” Gold also fell.

Traders will have to deposit at least $21,600 in order to trade silver futures after May 9, up from $11,745 two weeks ago, according to the article. Comex has announced five margin increases since April 25, and silver has plunged 27 percent from its 30-year high of $49.845 an ounce on April 25.

“Who wants to hold a falling knife?” Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva, was quoted as saying, adding: “Having failed around the $49.80-an-ounce area, there was a lot of disappointment in the market. With a lack of liquidity and a hike in margin requirements, everyone wanted to get out of silver at the same time.”

Silver had rallied 57 percent this year, leading the 19 commodities tracked by the Thomson Reuters CRB Index. Silver reached a record $50.35 in January 1980 (then collapsed) as the Hunt Brothers of Texas tried to (illegally) corner the market.
“Increased margins are certainly a catalyst” for the slump, Michael Pento, was quoted as saying, adding: “It makes sense that silver is getting hurt much more than gold as the global economy is slowing down.” Pento is the senior economist at Euro Pacific Capital Inc. in New York whose predictions of the collapse in commodity prices in 2008, the rebound in 2009, and the gold rally in 2010, turned out to be accurate.

Still predicting, Pento reportedly said that silver may stay below $35 by the end of next week before rebounding to $40 in the third quarter, adding: “The economy will be so bad that Federal Reserve Chairman Ben Bernanke will have to hint at another round of quantitative easing by the fall.”

Many experts hold that market price fluctuations are random (unpredictable) in short term.

One thing that is predictable, however, is that leveraged exchange traded funds, will markedly amplify market movements. ProShares Ultra Silver ETF lost 51% the week of May 2-6, 2011, while non-leveraged ETFs fell about 30%, according to an InvestmentNews article entitled “Ultra silver fund now ultra light after commodities selloff.”

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