Gold and silver futures headed sharply lower on Tuesday, with the drop in silver prices following a move by the CME Group to raise margin deposit requirements for trades, in the wake of precipitous gains in the precious and industrial metal.
On Monday, the Commodity Futures Trading Commission’s Acting Chairman Rostin Behnam said that the CFTC is “closely monitoring recent activity in the silver markets.”
That statement was followed by the CME Group announcing that it was raising margin requirements to $16,500 per contract from $14,000, an 18% hike, effective Feb. 2. The move means that silver futures traders are required to put down more collateral to open a trading position.
“It is not uncommon for exchanges to introduce such measures when there are violent price swings,” said David Madden, market analyst at CMC Markets UK, in a market update. “Silver has fallen as the brakes have been essentially applied by the exchanges.”
Silver futures for March delivery
dropped $2.55, or 8.7%, to $26.87 an ounce, after jumping 9.3% to mark around the highest settlement for a most-active contract since 2013.
The slump in silver follows what some dealers and commodity strategists have attributed to an attempted short-squeeze, pointing to individual investors who also were blamed for driving up the values in shares of GameStop Corp
and AMC Entertainment Holdings
in the past few weeks.
“It appears the attempted short-squeeze in the silver market has failed, at least at this point,” said Jim Wyckoff, senior analyst at Kitco.com.
“Silver bulls’ next upside price objective is closing prices above solid technical resistance at this week’s high of $30.35 an ounce,” the Kitco analysts wrote. “The next downside price objective for the bears is closing prices below solid support at $26,” he said.
Prices for silver have rallied in recent days and comes as a post on Reddit last week referenced a short squeeze on the metal in a way similar to those that helped to send the prices of GameStop and AMC surging and hobbled a number of hedge funds.
However, the $1.5 trillion silver market is viewed as a much tougher target for individual investors congregating on sites like WallStreetBets and Discord.
Meanwhile, gold prices were getting knocked sharply lower.
” Silver’s move lower has weighed on gold,” said Madden. “The yellow metal had also been hit by the broader risk-off attitude as it has historically benefitted from dealers seeking out assets that are considered to be lower risk.”
Strength in the U.S. dollar Tuesday has also weighed on both gold and silver, analysts said.
An upside breakout in the dollar to the highest level since December has contributed to what appears to be a “profit-taking setback” for the precious metals, said analysts at Zaner Metals, in a daily report.
The ICE U.S. Dollar Index
was up 0.2% at 91.201 after trading as high as 91.287 in Tuesday dealings.
On Comex, April gold
tumbled $24.70, or 1.3%, to trade at $1,839.20 an ounce, following a 0.7% gain on Monday.
Gold prices are trading below both the 50-day moving average at $1,858.26 and the 200-day MA at $1,852.81 an ounce, FactSet data show.
Moving averages are used by technical analysts to help gauge short-term and long-term bullish and bearish trends in an asset.
Among other metals, March copper
shed 0.4% to $3.5315 a pound. April platinum
traded at $1,102.40 an ounce, down 3.2%, while March palladium
lost 0.3% to $2,235.50 an ounce.