Flash crash for silver futures after Comex margin change
Posted on 02 May 2011 with 4 comments from readers
Silver futures yesterday suffered their biggest plunge since October 2008 during the global financial crisis with metal due for delivery in July falling to $42.20 an ounce.
The ‘Flash Crash’ followed a rule change by the Chicago Mercantile Exchange that increased silver margins by 13 per cent with effect from the close of business on Friday. Raising margin requirements is a classic way to try to cool a speculative market.
However, silver for immediate delivery quickly recovered to $45, albeit sharply off the highs of almost $50 reached last week. Gold lost a little of its recent shine dropping just below $1,550 an ounce.
Is this the start of a summer swoon for precious metals? If so it has been widely anticipated and would confirm to historic patterns of summer weakness, generally followed by a strong autumn rally.
Comex manipulation
The Comex rule change would be compounded by a general fall in global stock markets which are looking very overvalued after a long rally and a poor actual economic recovery to date. Gold and silver dropped alongside financial markets in the global financial crisis of 2008 but have not always headed down in periods of financial distress (click here).
That might make yesterday’s price move a ‘Flash Crash’ like the one a year ago that some saw as the start of a stock market downturn, while the market rally merely paused and then went on up and up.
Silver might similarly confound the skeptics and chart readers who focus too much on technical factors and do not consider the fundamental changes taking place in global currency markets where precious metals are the only money in demand.
The ArabianMoney newsletter published today contains novel ideas on how to make a fortune in silver without speculating on the Comex futures market (sign-up here).
4 Comments posted by readers:
Here’s some more interesting reading on the silver “flash crash” . . . or, as I prefer to call it, “the JPM Cartel’s nuclear attack on silver.”
Go here:
http://www.zerohedge.com/article/more-silver-dive-massive-sell-orders-coupled-bolivian-nationalization-halt-combine-perfect-w
@ obewon -
Wait, hold the fort. Something turned gold down simultaneously, although silver crashed 10% like it was shot out of a canon. Look at the times. Hours later it was leaked that Obama would speak. Look at the effect of the news. How predicable was that outcome? Remember the Airlines shorts way back when?
One of the main reasons we saw this flash crash is because most of the Chinese were on Holiday here in Asia. Monday was a day off for Taiwan,China,Hong-Kong and Singapore. The Chinese play a very important role in Silver these days. In the past the Chinese did not trade Silver but now they do. On the day they were off it was easy to manipulate the price downwards. I think we will retest the lows of that flash crash either this week or next week and rebound after. I think the retest will come this week but the overall trend is up with high volatility this week in the Silver price and trade.
@ James M.:
You are correct! Last Sunday evening at 8:30PM PDT, I just happened to be checking my email; out of curiosity, I decided to check on silver’s spot price in Asia, since my Chinese-born wife said it was holiday there. While I wasn’t surprised to see a “take-down”, I was shocked at how swiftly and how deep they were able to force the price down by 20%.
This just “happened to be” the same time when Obama made his announcement of Osama’s death. Coincidence? Perhaps. Or Perhaps not. But for the astute investor, this is also the time to place “stink bids” in your favorite silver mining firm, or to buy options if that’s your style.
Consider the Following, Related to Silver “Take-Downs”:
1. The primary players in the JPM Cartel include GS, HSBC, MS, DB, Scotia Mocatta; in other words, these coordinated moves are global in nature. Years ago, it used to be only a few big players who coordinated their attacks.
2. As the Kingpin, when JPM wants to “take-down” silver hard, they must also short the gold price (though not by much). Their algos know exactly by how much.
3. Like a military operation where the element of “surprise” is essential, these centrally coordinated and globally distributed operations take maximum advantage of the Globex, the time-zone differences, and coincident global events (e.g. the holiday in China, as Andy stated above; very light trading periods; etc.).
4. In JPM’s case, since their silver shorts are so massive, they also use this opportunity to cover as much of their short position as possible; they’re tired of forking over $1 billion each time that silver goes up by $1.
For a very interesting read on the intricate mechanics of these “take-downs”, go here:
http://www.gata.org/node/9667
You’ll find it enlightening.
P.S. I believe Andy is spot-on, with his prediction of re-test later this week or next week.