Wednesday, November 10, 2010

What Happened To Silver?

What happened to the silver market yesterday?

The chart below shows the silver prices over the past decade.  You can clearly see the recent point when Bernanke gave his Jackson Hole speech letting the markets know that Quantitative Easing part II was coming.  This speech was at the end of August and the silver market since that point has been a rocket ship with no break.



That was until yesterday afternoon when the market fell close to $3.00 in just a few hours!  The reversal can be seen in the chart below:



The sell off was triggered by the CFTC announcing an increase in the margin requirements for silver from $5,000 to $6,500 per contract.  Purchasing an commodity on margin means that you are borrowing money to buy.  If you have purchased $100 million in silver on margin, and the margin requirements are raised from $5,000 to $6,500, then you have to come up with another $15 million in cash to keep your position.

Or you have to sell a MASSIVE amount of silver to keep your margins in balance.  And this is what happened yesterday.

This is standard procedure for the COMEX to raise the margin requirements based on specific guidelines that the exchange follows.  It is not part of some "conspiracy" which has been floating around the internet.

Pull backs are opportunities to add to positions.  Where will prices be tomorrow or 3 hours from now?  Hopefully much lower so we can purchase more.

Where will they be 2 years from now?

Much, much higher.

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