Since Sunday evening when the Chicago Mercantile exchange and primary brokers raised the margin requirements on silver, the price has now fallen nearly $7 and is close to falling below $40 for the first time in nearly a month.
On May 3rd, silver started falling from a high of $44.34 early in US trading to now sit at $41.86. This drop of $2.50 for the day makes the fall in silver spot prices result in more than $7 in the past 10 days.
Much of the move has not been a voluntary bailout from silver futures, but rather a forced selloff due to the institution of raising margins. Brokers and exchanges alike raised the margin requirements nearly 100% in a single day, while also raising it three separate times in the past week.
Since the dollar has not risen at all during this selloff of silver, the question then becomes, where are most investors moving their money from the futures market? The answer may be a transition to the SLV ETF, as volume for the fund is up to 200 million shares per day.
After trading 200 MM shares per day, along with outpacing the daily volume in the SPY, it is safe to say that the Silver ETF is leading the futures at this point so here is the question I pose.
When is Finra going to raise the margin on the SLV ETF like it did on all the leveraged and inverse products a couple of years ago?
Right now to buy the SLV etf eats up about 22K in margin buying power, imagine if this were doubled?
FINRA and other folks are keenly aware of this trading vehicle, particularly when an unhealthy market exists. Now if the Silver ETF trading settles down to normal levels, probably not much will happen but if it keeps this crazy pace up, it is very difficult to rule this out. – Zerohedge
The fundamentals for silver have not changed due to the price drop recently, and it completely has to do with the regulators manipulating the requirements to force out longs who were hoping to create a short squeeze. Less than two months ago, JP Morgan was forced to pay up to $50 an ounce for silver contracts since there was no available silver on deposit to provide for deliveries. This was an 80% premium over the then spot price of $32 an ounce.
Since that time, silver rose to just below $50 an ounce, and only through massive manipulation of the markets during times when either Asia or Europe were closed due to holidays was that psychological barrier not breached by traders.
Silver is about to fall below $40 an ounce, but investors of the precious metal believe in the fundamentals, even with the new margin requirements. As they move out of the futures market and into the SLV ETF, Finra may have little choice but to do the same raising of margins to halt the rising prices just as they did to manipulate silver contract purchasing.