A Sunday Vertical Drop of Gold, Silver, Platinum and Palladium

By EconMatters

I was fully expecting a non-eventful Sunday afternoon when out of no where, precious metals started their contest of vertical drop, as shown int the following live charts from Kitco.com as of Sunday, May 1, around 7:00 pm EST. 

As expected, silver is the undisputed champion, dropping about 10% from the previous day's close, glod, platinum each went down about 7.5%, while palladium lost about 2%.

For now, there does not seem to be any significant event that could prompt such a move in precious metals. So, my best guess is that this Sunday sell-off is most likely related to the recent margin hikes by CME and MF Global that finally took their toll on the Silver market, forcing some big players to liquidate positions triggering a cascading stops to be executed.

According to Inside Futures, MF Global implemented a 175% margin increase over the CME's recent 9% margin hike.  Moreover, Bloomberg reported on the evening of Sunday May 1 that the CME imposed another incrase of the initial margin by 13% to $14,513 per contract from $12,825, to take effect after the Friday close.  Margins were $4,250 a year ago.

Such a huge margin increase typically will trigger a mass liquidation and reduce traders' participation in the silver market, which would also trigger sell offs in other commodities.  Crude oil and copper were both traded modestly lower, partly responding to the movement in precious metals.

Meanwhile, amid silver's recent huge runup, some investors are moving ot take profits, while U.S. Commodity Futures Trading Commission data showed hedge-funds and other large speculators cut their net-long positions in New York silver futures by 26% in the week ended April 26. 

EconMatters, May 1, 2011 | Facebook Page | Post Alert | Kindle

Comments

[riley martini]

 Right gold is only off 1% . The more industrial metals  5 to 10% ,maybe lower GDP the lower industrial use. Plus silver chart looked like MT. Everest.

[Spitzer]

really? that sucks. I want a solid drop here

[Sudden Debt]

It was a solid drop. But now it's already back near 46$ and will be back at 50$ by the beginning of next week.

And don't forget that they are running out of bullets to stop it.

But they will keep rising it untill it will be more expensive to buy paper than silver and that's when we'll see silver at +1000$

[morkov]

it is because Qaddafi will blow-up every petrol refinery in the country tomorrow morning. it will be a run to petrol, cashing on the panic, then back to bullion again