CME gold silver marginsAlthough Open Interest remains high in silver, the CME must need a new flock of investors to fleece in paper metals, as the CME announced after Thursday’s market close a major reduction in gold and silver margins effective after the close Tuesday Feb 12th.

The CME cut gold initial and maintenance margins from $6,600 & $6,000 to $5,940 & $5,400 respectively, and also slashed silver initial & maintenance margins from $12,100 & $11,000 to $10,400 & $9,500, a reduction of 10% in gold & 14% in silver!

For those new to the market who might be wondering why silver margins have been $12,100 while golds have been $6,600 (particularly when a single gold contract is valued at ~ $165,000, while a single silver contract is valued at ~$158,000)….

 

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Silver margins are double those of gold
because the cartel had to break the back of silver’s explosive short-squeeze rally in April 2011 with 5 consecutive margin hikes in less than 1 week to prevent silver from taking out the all-time nominal high of $50.35, and exploding to the upside & out of cartel’s ability to cap & control the market.

With silver now in the low $30′s and sentiment only slightly off historic lows, the CME Group appears to believe they have some room to breath by enticing a few more paper traders back in to the COMEX futures pits.

 

From the CME:

FROM:
Clearing Member Firms
Chief Financial Officers
Back Office Managers
Margin Managers
SUBJECT:
DATE:
Thursday, February 07, 2013
To receive advanced notification of Performance Bond (margin) changes, through our free automated mailing list, go to
The rates will be effective after the close of business on
and subscribe to the Performance Bond Rates Advisory Notice listserver.
Current rates as of:
Thursday, February 07, 2013.
Tuesday, February 12, 2013.
As per the normal review of market volatility to ensure adequate collateral coverage, the Chicago Mercantile Exchange Inc., Clearing House Risk Management staff approved the performance bond requirements for the following products listed below.

The rates will be effective after the close of business on Tuesday, February 12, 2013.

Current rates as of:
Thursday, February 07, 2013:

CME gold silver margins

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  1. @silvermeddler – silver margins are double those of gold because the cartel had to break the back of silver’s rally in April 2011 with 5 consecutive margin hikes in less than 1 week to prevent silver from taking out the all-time nominal high of $50.35, and exploding to the upside out of cartel capping control. 

    -Doc

    • Doc, you are absolutely right.  It was a do-or-die situation, the physical silver supply was pretty dry at the time and lease rates were insane.  I don’t work with a Bloomberg terminal anymore, so I can’t tell you actual numbers from the week prior to May 1st, but they were crazy.
      Silver was not in a bubble blow off by any means, even though the media tried to make it seem that way.  Every major trader was left scratching their head in the wee hours of the morning when the raid started.  There was absolutely not major market moving news or events to trigger the kind of liquidation (…. err short selling) going on that day.
      The margin increases back to back were unheard of before that week.  The volatility laughingly didn’t change during the margin hikes until AFTER the raid started.

  2. Is this an indirect pump and dump? Seting up a nice promising rally for eager traders taking on the PM futures market, only to be beheaded when the prices get too high too quickly? Which traded would be stupid enough to go deep into PM long without the intention to actually take delivery? Answer: enough to ruin the price for decades.

  3. Margins are set based on volatility. The more volatile the DAILY price moves are, the higher the margin. Golds margin is now 4% of the contract value, while Silvers is 6.5% – for simplicitys sake, lets say that Silvers margin is 50% more than Golds. This would imply that on any given day, Silvers price may move at more than 50% of Golds. In reality, Silver sometimes moves at 2 to 3 time more than Gold – thats 100% to 200% more. So, in fact, Silvers margin should be at least 100% more than Golds, which would be a margin of 8% (4% x 2).
     
    As I recall, n the first 3 days of May 2011, Silver dropped by about 10% a day, which is huge volatility. This caused margins to be sharply increased, as they are set based on daily volatiity.
     
    The margin for S&P 500 futures is about 5%. S&P futures are less volatile than Gold, so Golds margin should not be 4%, but quite a bit higher, which implies Silver too should be higher than 6.5%. This does make one suspect that the CME are enticing longs into Gold/Silver with the idea for JPM to fleece them by later raising margins.
     
    However, there is another consideration. After MF Global, many Institutional players are no longer allowed to buy Gold or Silver on the CME futures exchange, as the CME failed to meet its guarantees to protect its participants who lost money to the MFG fraud. This caused the turnover in PM futures on the CME to reduce significantly, and so the CME has been lowering Gold and Silver margins to try and push its turnover back up. Add to this the poor sentiment around Gold and Silver presently, which reduces turnover even more, its logical the CME would try to boost business by reducing margins.
     
    Till 12 Feb, when the new margins kick in, Comexs present margins are Gold $6 600 and Silver $12 100. However at Interactive Brokers the margins are Gold $7 500 and Silver $14 850. IB clearly thinks Comexs margins are too low, given the volatility of the PMs, and is protecting its clients from the over leveraging opportunity the Comex is offering.

    • I’m sorry to say it, but you’re absolutely wrong.  Margins on the CME are _not_ based on volatility at all.  Your basis for why silver margins are higher and were raised higher dramatically PRIOR to silver being pulverized in May 2011 is that it was “volatile” when in actuality it was not more volatile PRIOR to the incident.
      If margins were based on “volatility” then the CME would simply publish a formula indicating how they calculate margins.  They cannot, because the margin rates are NOT based on math.  They are in fact based on what people at the CME arbitrarily decide, possibly through back channel discussions with market participants and (clearly corrupt) regulators like the CFTC.

      Anyone that watched intraday activity and volume of trading on a per-tick basis back in May 2011 knows what occurred that day.  That day (May 1st) was absolutely not market sell off or participants trying to liquidate positions.  It was an attempt (dare I say, possibly successful?) at burning any longs in the market and causing massive margin calls in the following days.  The amount of money dumped into the market during extremely low volume hours was insane.  No single market participant except banks with unlimited fiat could attempt such a maneuver.

      Anyway, back to the point.  You are talking out of your ass if you say CME bases margin rates on volatility.  You don’t know shit. Sorry to sound so aggressive, but its the truth.

  4. Smells like a setup all the way. A good buddy of mine got decapitated during the “great raid.” He was heavily long silver on margin and was forced to sell at a huge loss when the price dropped by $4 in over night trading. He no longer trades silver but he does believe in it as a long term investment. I am sure what happened to him happened to a bunch of traders who are now gun shy to go head to head with the criminal CME.  

  5. @ saddle
     
    I did not explain the increase in silver volatility prior to the early May takedown.
     
    When prices rise parabolically, that is an increase in volatility. Silver was rising parabolically during March/April of 2011 (when observed against the short, medium and long term trendline) . Clearly margins had to be increased on the volatility caused by quickly rising prices, just as margins were increased further when prices reversed parabolically downwards early May 2011.
     
    Investopedia explains volatility thus (they use the word “dramatically” instead of “parabolic”):
     
     
    Investopedia explains ‘Volatility’
    In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
    Read more: http://www.investopedia.com/terms/v/volatility.asp#ixzz2KIntUort
     
    The Cartel does not need margin increases to supress silver or gold. They have such paper fire power, they do it when they want – just look at the last couple of months. Both gold and silver are in a quite stable trading range for a while now, causing volatility to drop, so the CMEs volatility/margin statistical formulas compute a lower margin necessity.

  6. @shaktar
     
    In plain English:
     
    Silver and gold are in a stable (and relatively narrow) trading range for a while now, causing volatility to drop, allowing margins to be decreased. Periods of low volatility are followed by periods of high volatility, and vice versa. The next period of high volatility, from the present low one, can be caused by either dramatically increasing or decreasing prices – the fact is no one knows which direction it will be in. Any such dramatic increase in volatility, either direction, is more likely than not likely to be followed by increased margins.

  7. Andyz, The link referenced in fact states that “we consider several factors to compute the gains and losses a portfolio would incur under different market conditions. Then we calculate the worst possible loss a portfolio might reasonably incur in a set time (usually one trading day for futures markets).”
    Unfortunately these factors are not based on purely volatility, they are arbitrary decisions by the CME.   Additionally, they indicate their goal is to consider possible losses and reduce them by increasing margin…. that goal was clearly manifested as the short portfolios in silver were clearly taking losses at a high rate.
    Yes, looking back it ‘appears’ like a parabolic move when viewed on weekly charts, but the daily moves were not parabolic.

    “Our interest is in providing security for the entire market – no matter which way it moves.”. Knowing that the market is dominated by short banks, they must increase margins during up moves only.

    Also, headlines say increase/decrease of margin, but they don’t ever consider market price in evaluating how to write the headlines. Its intentional that the CME doesn’t publish initial margins based on the percentage …. instead just a raw value. This is done to perpetuate the headline deception.

  8. @ saddle
     
    The daily moves up for 2 months to end April 2011 were cumulatively sufficient to create increased potential volatility for each succeeding day as time (weeks) progressed – look at the extreme divergence then on the weekly chart ($SILVER on stockcharts) from the 200 day moving average i.e. too great a price rise over too short a time period.
     
    The CME PDF document below is perhaps a better explanation that volatility is the prime decider on their margin levels, no matter what factors are increasing the volatility i.e. it is not only price that influences volatility. In this PDF they specifically use the example of Silver and Gold that April/May 2011 time period to illustrate the principles they apply – in this case it was however simply a question of price rising too quick, over too short a period.
     
    Type this into Google search, and download the PDF:
     
    http://www.cmegroup.com/clearing/files/cme-clearing-margins-quick-facts-2011.pdf
     
     

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