Tags: Silver | Futures | Plunge | Most | Since | 2008 | CME

Silver Futures Plunge Most Since 2008 as CME Increases Margins

Monday, 02 May 2011 09:12 AM

Silver futures plunged as much as 13 percent, the biggest intraday drop since October 2008, as CME Group Inc. raised the amount of cash that traders must deposit for speculative positions.

The metal for July delivery dropped to $42.2 an ounce before trading at $43.875 an ounce at 11:46 a.m. in Singapore. The CME increased margins by 13 percent with effect from the close on Friday, according to a statement.

Futures advanced 28 percent in April, the largest monthly gain since January 1983, and more than doubled in the past year as investors sought to protect their wealth against a weakening dollar and inflation. Federal Reserve Chairman Ben S. Bernanke signaled last week he will keep pumping record amounts of money into the world’s largest economy and reiterated a pledge first made two years ago to keep interest rates “exceptionally low.”

“We got massive sell orders in the spot market,” Jonathan Barratt, managing director at Commodity Broking Services Pty, said in a phone interview from Sydney today. “Those sorts of moves may be an indicator of a key reversal, but it will often take one or two weeks to unfold.”

Silver for immediate delivery slumped as much as 11 percent to $42.6775 an ounce and traded at $43.95. Gold for immediate delivery gained as much as 0.9 percent to a record $1,577.57 an ounce before reversing to drop 0.9 percent to $1,549.47.

Fewer Bullish Bets

Silver is the best performer this year on the Standard & Poor’s GSCI Index of 24 commodities. The metal led the way in April as commodities beat stocks, bonds and the dollar for a fifth straight month, the longest stretch in at least 14 years.

Gold increased 9.2 percent this year and is set for its 11th annual gain, while silver jumped 43 percent as investors increased their holdings in exchange-traded products to a record 15,518 metric tons on April 26.

Hedge-fund managers and other large speculators cut their net-long positions in New York silver futures by 26 percent in the week ended April 26, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will gain, outnumbered short positions by 24,995 contracts on the Comex division of the New York Mercantile Exchange, according to the CFTC.

Initial margins increased to $14,513 per contract from $12,825 and maintenance deposits rose to $10,750 from $9,500, said CME, parent of Comex where the futures are traded.

More Expensive

Gold bought 35.07 ounces of silver today, 7.5 percent more than the 32.64 ounces on Friday.

The ratio “has come down to levels of about 30 recently after silver’s run-up, which means silver had become expensive in relative terms,” said Lee Joon, a senior trader at Woori Futures Co. in Seoul.

Silver surged after investment demand jumped 40 percent in 2010 as inflation gained, currencies lost value and Europe’s debt crisis escalated, according to London-based researcher GFMS Ltd. Industrial use gained 21 percent last year, it said.

Eastman Kodak Co., the 130-year-old imaging company, is raising prices and cutting its dependence on silver to cope with escalating costs, the company said last week.

“We put in place contingencies to deal with a significant increase” in the price, Antonio M. Perez, chairman and chief executive officer, said on a conference call. “We’re indexing our contracts. We’re hedging, and we’re moving as fast as we can with the part of the portfolio that has no silver dependence.”

“Profit-taking” seemed the most likely cause of the decline today, said Park Jong Beom, a Seoul-based trader at Tong Yang Futures Trading Co. “Silver has risen very fast.”

Palladium for immediate delivery fell 1.6 percent to $781 an ounce while platinum dropped 1.8 percent to $1,839.

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