Comex raises margins, silver futures plunge

By Dow Jones Newswires
Posted Nov. 10, 2010 at 1:15 p.m.

Tighter margin requirements for silver futures triggered a sharp selloff Wednesday that spread to gold.

Silver for December delivery declined $1.84, or 6.3 percent, to $27.15 an ounce on the Comex.

Gold futures also fell steeply as the dollar rose and the day’s  macroeconomic data painted a mixed picture of  the U.S. economy. Copper futures also sold off.

CME Group Inc., which runs Comex, said late Tuesday it will raise margin requirements for silver futures.

Margins are the money investors put down to be able to trade a futures contract. Minimum maintenance margin requirements for silver went to $6,500 from $5,000 per contract, effective Wednesday.

The decision caught investors as they were starting to roll over their investments to the silver contract for March delivery. Some decided it was time to take profits rather than put up more money.

“The margin increase will run its course,” said Jim Steel, an analyst at HSBC in New York. In a sharp rally like silver has been enjoying, “it can lead investors to a rebalance and some liquidation.”

No other metals contracts were affected by the move, though markets were abuzz with expectations gold margins would also be raised.

Gold for December delivery retreated $14.10, or 1 percent, to $1,398.20 an ounce. The metal settled at $1,410.10 an ounce the previous session, its fourth record in a row.

Silver and gold “appear to have run out of (bullish)  fuel on the news front,” said Jon Nadler, an analyst with Kitco Metals, in a note.

The December silver contract reached an intraday high of $28.18 an ounce earlier.

“This high volatility suggests strong involvement by speculative-oriented financial investors, but is by no manner of means a phenomenon that only applies to the silver market,” analysts at Commerzbank said in a note to clients.

“The fact that silver is in high demand and is outstripping gold in terms of investor interest is also shown by renewed high inflows into silver ETFs,” the analysts said.

Silver’s trading volume on Comex hit a record level Tuesday.

The iShares Silver Trust (SLV), an exchange-traded fund, reported an increase in its holdings Tuesday of 113 metric tons, to 10,366 metric tons.

The ETF more than tripled its previous one-day volume record on Tuesday as 149.1 million shares traded in choppy action, according to FactSet Research. The prior high was 45 million shares set  Nov. 3.

The iShares Silver Trust ended Tuesday’s session with a loss of 3.6 percent, but it had gained 0.4 percent on Wednesday.

Meanwhile, copper for December delivery fell 6 cents, or 1.6 percent, to $3.98 a pound.

December palladium fell 5.7 percent from nine-year highs, trading $40.40 lower at $700.20 an ounce. Platinum for January delivery was off $65, or 3.6 percent, to $1,744.60 an ounce.

The dollar index, which tracks the performance of the U.S. unit against a basket of six currencies, rose 0.6 percent, to 77.93.

Traders earlier contended with a drop in last week’s U.S. jobless claims, better than analysts had expected. The number of workers filing for new unemployment benefits fell 24,000 to 435,000 in the week to Nov. 6, while economists had expected a decline to just 450,000.

Also Wednesday, prices of goods imported into the U.S. rose 0.9 percent in October as fuel costs surged, the Labor Department reported. Prices for imports excluding fuels increased a smaller 0.3 percent. Economists polled by MarketWatch had expected import prices to rise 1.3 percent.

Read more about the topics in this post: ,

Companies in this article

CME Group

Read more about this company »

One comment:

  1. Ian James Nov. 10, 2010 at 5:07 pm

    Good factual reporting but I fail to see why you have to sully it with one of Jon Nadler’s inane editorial digs. Did your editor push this on you or were you just bored and trying to make your writing a little more provocative.