Well, so much for a sleepy and quiet Sunday night. Precious metal markets are down across the board: silver leads the declines but gold, palladium, platinum are also down, as is oil. The US Dollar is up slightly and equity futures are set to open up Monday morning.
Silver futures plunged in electronic trading from $48 to almost $42 and are now off just 8-9%:
I’ve repeatedly warned about the parabolic nature of silver’s chart:
The break in the chart so far is not enough to move us out of the third upward trendline (on a daily chart) so this is not a stake through the heart for silver bulls. But it can certainly be the start of a major decline. Remember, prices usually fall much faster than they rise.
There isn’t a clear consensus on what is driving the selling. The repeated margin increases by the CME which took initial margin for speculators to a whopping $14,513 (a 13% increase from last week’s $12,825) makes sense. Maintenance margin for speculators was raised to $10,750 from $9,500. For hedgers and exchange members the margin is $10,750, up from $9,500.
Considering the price increase in silver, margin increases are to be expected but they are clearly asymmetrical as it was just $4,250 last year. There’s also some chatter from the gold/silver bugs about MF Global (lead by Jon Corzine a Goldman Sachs alum) raising their margins by 175% for silver over and above the CME margin requirements. But what some may interpret as a conspiracy, others see as a broker trying to protect itself in what they see as an increasingly volatile market.
Another possible cause may be the death of Osama Bin Laden as part of a US military operation in Abbottabad Pakistan. But for that we’d expect gold or oil to be leading the decline. That isn’t the case.
And yet another some chatter about the first faint signs of a slowdown in the Chinese economy.
As a contrarian who mostly relies on technical patterns and sentiment, I’m happy to accept the underlying reason that silver sentiment was extremely bullish and the chart parabolic and therefore unsustainable. It was a matter of time until it collapsed under its own weight.