May 05

“The fastest way to collapse a recent run up in prices is to choke off the ability of those with leveraged long paper positions to raise cash. Another way is to rapidly hike margins; those with insufficient ready cash will be forced to liquidate. As they liquidate to meet margin calls, prices fall, and it creates a cycle which feeds on itself. I have no explanation for the recent ramp up in silver prices any more than I have an idea of where spot silver prices eventually hit bottom.”
Janet Tavakoli

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago’s Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).

See also:

- Mike Krieger of KAM LP on Gold And Silver, Exposes ‘The Big Lie’


- Silver Keeps Falling After Hours, Down More Than 11% On the Day (Wall Street Journal):

Silver selling continued after the official Comex market close, sending poor man’s gold down more than 11% on the day to $34.980. Silver has lost nearly 30% this week.

And the pressure may continue. At the close today, CME, which owns Comex, will enforce a 16.7% increasing in trading deposit requirements. That means speculators in the benchmark 5,000-ounce silver contract will now be asked to put up $18,900 per contract to open a position, and maintain $14,000 of that to keep the contract overnight.

Investors must exit positions if they can’t afford the higher margins requirements. The exchange raises margins during times of high volatility to ensure market participants are adequately capitalized.

Silver traded as high as $48 at the start of the week. It is still up more than 100% in the last year.

- Gold, Silver Prices Free Fall on Dollar Rally, Margin Hikes (The Street):

NEW YORK (TheStreet ) — Silver prices tanked after another margin hike from the CME and a stronger U.S. dollar, taking Gold prices along for the ride.

Gold for June delivery plummeted $33.90 to close at $1,481.40 an ounce at the Comex division of the New York Mercantile Exchange, but has fallen as much as $45 in after hours trading. The gold price has broken through $1,500, trading as high as $1,522.10 and as low as $1,471.80. The spot gold price was down almost $50, according to Kitco’s gold index.

- Gold, Silver Pummeled; End In Sight? (Barron’s)

- Gold, silver slump on new margin hike, stronger dollar (Xinhua)

- Commodity Crunch Hitting Miners, Energy and ETFs (Wall Street Journal)

- Gold settles under $1500, silver trades 8% lower (MarketWatch)

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