CME lifts silver margins 11.6%, sending white metal down
By Virginia Harrison, Chris Oliver and Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Precious metals prices fell on Tuesday, led lower by a nearly 5% slide in silver, after the main U.S. metals exchange announced higher margin requirements, the third such hike in a little more than a week.
Also, “silver has been pulled between weak underlying fundamentals and strong retail investment demand, with investor demand residing in the driving seat,” said analysts at Barclays Capital.
July silver futures SIN11 -5.26% fell $2.57, or 5.6%, to $43.51 per troy ounce. The metal fell as low as $43.21 an ounce earlier.
Gold for June delivery GCM11 -0.93% dropped $14.30 or 0.9%, to $1,542.80 an ounce.
Other factors weighing on gold and silver included the death of Osama bin Laden, which was seen as reducing geopolitical anxieties and triggered selling in the less-risky asset classes of precious metals.
Initial margin requirements for silver were increased to $16,200 per futures contract, from $14,513 per contract, CME Group Inc. said in a statement released Monday afternoon. Maintenance margins were lifted to $12,000 from $10,750.
The revised margin requirements will take effect from the close of trading on Tuesday, said CME Group Inc., which owns Comex.
The enlarged margins mean investors have to put up larger sums to hold speculative positions in the gray metal and has likely forced small investors to liquidate positions, analysts said.
One analyst said the move was “highly unusual” and that silver prices would likely come under pressure, at least in the short term.
“The more important question here is, though, why margin requirements were put up three times within days. ... The answer may lie in the price manipulation, ” said Martin Hennecke an investment adviser with Tyche in Hong Kong.
The margin increases announced last week preceded the surge in silver prices to a 31-year high. But on Monday, the metal plunged by as much as 13% at one point. The silver contract ended 5.2% lower overnight for its biggest one-day percentage drop since early January.
Barclays analysts noted that investors have been scaling back their exposure to gold and silver, while Mexican and Peruvian authorities noted higher silver production.
The death of Osama bin Laden removed one source of geopolitical risk, making investors more comfortable lowering the premium they demand for holding assets considered riskier, analysts at Brown Brothers Harriman said. Still, prices will remain supported.
“Gold is set to remain well supported as the combination of a weak dollar, elevated commodities and higher U.S. inflation expectations support demand for inflation hedges,” they said in a research note.
The dollar index DXY +0.24% , which compares the U.S. unit to a basket of six major currencies, improved on Tuesday, trading at from 73.084, up from 72.928 late Monday. Read more about currency markets.
