Despite the trepidation by some investors of further price declines, silver bounded higher, even as the fifth recent increase in silver margin futures by the COMEX took affect. As measured by the London Fix Price, silver closed at $38.00 on Monday, up from $34.20 on Friday. The impact of the higher COMEX margin requirements had clearly been discounted after being announced last Wednesday. The COMEX had roiled the silver market last week with a rapid fire series of five hikes in initial margin requirements for trading silver futures (see How The COMEX Crashed The Silver Market). The actions of the COMEX, combined with a short term overbought market, caused a sell off that sent silver prices plunging by a shocking 26% on the week. The five margin increases by the COMEX increased initial margin requirements by a substantial 84%. Thinly capitalized players were forced to liquidate positions driving silver prices lower, causing further forced selling as additional traders liquidated positions to avoid losses and margin calls. The large increase in margin requirements was highly disruptive to the market and had a dramatic adverse impact on prices. The mainstream media quickly characterized the drop in silver prices as proof that a speculative bubble had ended and predicted further declines in the price of gold and silver. However, none of the fundamental forces driving the rise in the price of silver have changed. The forced liquidations of leveraged silver futures traders can be viewed as a positive. The recent rout likely had the impact of moving positions from weak hands to long term investors willing to ride out the inevitable pullbacks seen in every bull market.

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