Silver Market Manipulation by the CME

by Brian on May 10, 2011

Over the past 2 weeks we have seen silver rise to within a few cents of it’s historic high of $49.45 in 1980; then we watched it fall over a couple of days down to $34 an ounce.

Why has silver dropped in value?

A lot of speculators say it’s because “the silver run has ended,” “silver was due for a correction,” “silver’s bear market is over,” “Bin Laden was killed, so the dollar is now stronger,” “the dollar was due for a bounce back, and silver is over.”

Anyone who believes anything of the sort is a fucking idiot.

There is 1 reason and 1 reason only that silver has dropped in value. That is because the CME (Chicago Mercantile Exchange) raised it’s margins by over 84% in a just over a week.

What’s a margin?

A magin is a type of collateral used to cover credit risk in trading.

Most people have no idea how trading works. It’s actually pretty interesting. I’m going to put this little lesson into terms a 3 year old retarded crack baby could understand. If you know how trading works, OBVIOUSLY there’s a ton more that goes into it, but this is like a high level overview.

Let’s say an investor wants to buy 1 contract of 5,000 ounces of silver futures at a value of $40 an ounce. ($40 is being used for simple numbers purposes.)

That 5,000 ounces of silver on paper would cost $200,000. So if a person wanted to buy 20 silver futures contracts, on paper the value would be $4,000,000.

Instead of paying $4,000,000 cash up front for the 20 5,000 ounce silver future contracts, a trader will pay the margin on silver contract . The margin is a small percentage of the contract price that is used as collateral against the contract amount. So instead of coming up with the entire $4,000,000 nut, the investor/ trader would put down a % based on what the CME set.

The margin on silver futures contracts (which are 5,000 ounce contracts) was $8,700 on April 25, 2011. That means, on that date with $4,000,000 you could have purchased 459 silver contracts with a face value of $91.8 million (using $40 an ounce for simple numbers purposes).

The margin on silver futures contracts today is at $16,200. So if that same investor who on April 25th bought 459 silver futures contracts NOW can only buy 246 silver futures contracts with a face value of $49.2 million (using $40 an ounce for simple numbers purposes).

So, if that investor had 459 silver futures contracts purchased with $4,000,000 on the margin… When the margins were raised, investors had to come up with a margin call. That means to continue to hold the 459 silver futures contracts the investor would have to come up with an additional $3,435,800 to cover the margin.

Because of the fact the silver market is primarily small investors and individuals (compared to the gold market which is comprised primarily of big investors such as large corporations and countries) when margins are raised, it causes small investors to sell their contracts to cover the new margins… That is EXACTLY what has happened here.

So when the CME raised margins, it effectively took the buying power away from small traders.

I personally think it’s a huge crock of shit to almost double margins in a week…

What’s up?

Here’s what’s up.

The demand for silver is still there. The people who wanted to buy silver 2 weeks ago are still buying it. They are just buying less than they could before on the open market.

Food and oil prices are still rising. The U.S. Government still has their heads planted straight up their asses with the economy.

I think margin requirements were raised to bump the small investors/ traders out of the market and open up some massive profits for the big players to buy more.

In the end

Here’s what I think is going to happen.

Silver is going to keep on going up against the dollar. I think silver will be over $90 an ounce by the end of summer and over $150 an ounce by the end of the year.

What do you think?

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