Silver investors holding 'a falling knife'

Silver investors holding 'a falling knife'
Hiked margin requirements, plus slowing global economy, triggering biggest drop in futures prices since 1983
MAY 12, 2011
Silver futures extended the biggest decline since March 1983 after CME Group Ltd. raised margin requirements for new speculative positions by 84 percent in less than two weeks. Gold fell for a third day. The minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $21,600 a contract after May 9, CME Group, Comex's owner, said yesterday. That's up from $11,745 two weeks ago. The exchange has announced five margin increases since April 25. Silver has plunged 27 percent since reaching a three-decade high of $49.845 an ounce on April 25. “Who wants to hold a falling knife?” said Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva. “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 futures for July delivery fell $4.508, or 11.6 percent, to $34.880 as of 3:30 EST. on the Comex in New York. Before today, prices slid 19 percent in three days. Through April 29, silver rallied 57 percent this year, the most among the 19 commodities tracked by the Thomson Reuters CRB Index. The metal reached a record $50.35 in January 1980 as the Hunt Brothers tried to corner the market. “Increased margins are certainly a catalyst” for the slump, said Michael Pento, the senior economist at Euro Pacific Capital Inc. in New York who correctly predicted the collapse in commodity prices in 2008, the rebound in 2009 and last year's rally in gold. “It makes sense that silver is getting hurt much more than gold as the global economy is slowing down.” Silver may stay below $35 by the end of next week before rebounding to $40 in the third quarter, Pento said. “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.” Gold futures for June delivery fell $29.60, or 2 percent, to $1,485.70 an ounce on the Comex, after dropping 2.7 percent in the previous two days. Before today, the metal gained 30 percent in the past year, reaching a record $1,577.40 on May 2, amid buying from central banks and rising investment demand. On the New York Mercantile Exchange, palladium for June delivery fell $40.35, or 5.4 percent, to $706.35 an ounce. Platinum for July delivery dropped $49.60, or 2.7 percent, to $1,776.70 an ounce. --Bloomberg News--

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